FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to
__________________
Commission file number: 0-17873
Giddings & Lewis, Inc.
(Exact name of registrant
as specified in its charter)
Wisconsin 39-1643189
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
142 Doty Street
Fond du Lac, Wisconsin 54935
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, including area code: (414) 921-9400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $.10 par value
Preferred Share Purchase Rights
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. [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant at March 6, 1995:
$578,917,014.
Number of shares of the registrant's common stock outstanding at March 6,
1995: 34,400,721 shares.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to Shareholders for the year ended December 31, 1994
(incorporated by reference into Parts I, II and IV)
(2) Proxy Statement for 1995 Annual Meeting of Shareholders (to be filed
with the Commission under Regulation 14A within 120 days after the
end of the registrant's fiscal year and, upon such filing, to be
incorporated by reference into Part III)
<PAGE>
PART I
Item 1. Business
General
Giddings & Lewis, Inc. (the "Company") is a leading global
designer and producer of large, highly-engineered, high-precision,
industrial automation systems, including automated machine tools, smart
manufacturing systems, flexible transfer lines, assembly automation
systems, measuring systems, industrial controls, and related products and
services. The Company's products are supplied primarily to the
automotive, construction, aerospace, defense, appliance, energy and
electronics industries and are manufactured at the Company's thirteen
facilities located in the United States, Canada, England and Germany.
The Giddings & Lewis name has been continuously present in the
Company's domestic markets for over 100 years. The Company was a public
company from 1937 until 1982, when its businesses were acquired by United
Dominion Industries, Inc. ("United Dominion"). In July 1989, United
Dominion sold its interest in the Company through a public offering. On
October 31, 1991, the Company acquired Cross & Trecker Corporation
("Cross & Trecker"), a manufacturer of machine tools and related factory
equipment. The acquisition was accounted for as a purchase and the
operations of Cross & Trecker have been included in the Company's
financial statements since the date of acquisition.
The Company's overall business strategy is to continue to
strengthen its position within the global industrial automation
marketplace by providing customers with a creative, single source for a
broad range of manufacturing products and services. The key ongoing
elements of the Company's business strategy are to (i) continue to
implement a focused customer-oriented marketing approach, (ii) expand and
extend the Company's product lines, and (iii) aggressively expand its
international franchise.
The Company operates in a single business segment, industrial
automation products, and is organized into four major operating groups:
Automation Technology, Integrated Automation, Automation Measurement and
Control, and European Operations. Net sales attributed to each of the
Company's operating groups for each of the last three years are shown in
the following table:
<TABLE>
<CAPTION>
Revenue by Operating Group
(in thousands)
Year Ended December 31,
1994 1993 1992
% of % of
Operating Group Amount Total Amount Total Amount % of Total
<S> <C> <C> <C> <C> <C> <C>
Automation Technology $162,895 26.3% $168,662 32.6% $202,206 32.5%
Integrated Automation 267,778 43.2 195,032 37.7 251,897 40.4
Automation Measurement
and Control 62,213 10.0 56,347 10.9 51,265 8.2
European Operations 126,585 20.5 97,421 18.8 117,566 18.9
-------- ----- -------- ----- ------- -----
Total $619,471 100.0% $517,462 100.0% $622,934 100.0%
======= ===== ======= ===== ======= ======
</TABLE>
Products
The Automation Technology Group, the Integrated Automation Group and
the Automation Measurement and Control Group sell products from the
automation technology, integrated automation and automation measurement
and control product lines, respectively. The European Operations Group
sells products from all three product lines. Each of the Company's
product lines is described below.
Automation Technology. The Company's automation technology product line
consists primarily of large, highly-engineered, high-precision, computer
numerically controlled machine tools and associated products and services.
Revenues from this product line were 32.0%, 35.6% and 37.4% of total
revenues for 1994, 1993 and 1992, respectively. The following are the
most significant products in this product line:
Horizontal and Vertical Machining Centers, which, through the
use of automatic tool changers, can mill, drill, bore, tap and
ream primarily metal parts of various shapes and sizes, in
programmable sequences;
Horizontal and Vertical Lathes, which cut round parts from metal
and other materials;
Horizontal Boring, Drilling, and Milling Machines, which perform
the same functions as horizontal machining centers, but do not
have automatic tool changers;
Cellular and Flexible Manufacturing Systems, which utilize
material handling systems and Company-produced computer
numerical controls and software, and prefixtured pallets to
integrate several machine tools to form a cellular system or to
integrate many machine tools to form a flexible manufacturing
system;
Fixtures and Cutting Tools, which are used to hold and to cut,
drill, or bore metal and other parts; and
Drill Point Grinders, which grind specialized drill points
including a helical point which has superior drilling
capabilities.
Substantially all of the Company's major machine tools and
fixtures are custom engineered to meet specific customer requirements and,
accordingly, have a high engineering component in their selling prices.
Although the Company's products are produced in a variety of sizes, the
historic focus and strength of its automation technology product line has
been large, highly-engineered, high-precision metal-cutting machine tools
such as those used to manufacture major parts for jet engines and
construction equipment. Trading on the Company's name and reputation,
these products occupy the premium-priced segment of the market. The
Company produces the majority of the computer numerical controls and
related software incorporated into its products. The Company's cutting
tools and drill point grinders are primarily sold to standard
specifications.
Virtually all of the Company's automated machine tools are
computer numerically controlled. They are designed to operate largely
unattended and are programmable to perform machining functions on a wide
variety of metal parts and other materials. Such standalone machines may
be combined with several pallets (on which parts in process are positioned
for machining) and pallet changers to increase production flow. The next
step in automation is to permit a part to be processed by one machine and
automatically transferred to another machine for further work. The
Company provides this capability through cellular and flexible
manufacturing systems that integrate the functions of several standalone
machines with the use of automated transport systems and Company-produced
cell managers and software. Since 1982, the Company has designed its
machine tools and their pallets to be compatible with each other so that
its established customer base can integrate new machines with existing
machines.
Standalone machines have historically dominated the Company's
machine tool sales, accounting for approximately 37%, 48% and 51% of
automation technology product line revenues in 1994, 1993 and 1992,
respectively. Cellular and flexible manufacturing systems accounted for
approximately 21%, 14% and 14% of automation technology product line
revenues in the same respective years. Included in such cellular and
flexible manufacturing percentages is a certain volume of standalone sales
to customers which create or enlarge machining cells by integrating the
new machines with existing machines.
The Company's revenues from post-sale services and parts are
primarily associated with its automation technology product line.
Services include training, maintenance, repair, remanufacturing and
retrofitting, and accounted for approximately 33%, 32% and 32% of
automation technology product line sales in 1994, 1993 and 1992,
respectively. Sales of such services and parts are at higher gross
margins than the machine tools themselves and have historically been less
sensitive to industry cyclicality than the sale of new equipment.
The other products in the automation technology product line
primarily consist of gray iron and ductile castings which are produced for
the Company's requirements as well as for sales to outside customers.
Through its foundry in Menominee, Michigan, the Company produces gray iron
and ductile castings of up to 35 tons, typically cast from unique patterns
supplied by the Company and its customers and maintained at the foundry.
Integrated Automation. The Company engineers, manufactures and sells
flexible transfer lines, flexible machining systems and special machining
systems. The Company is also a leading domestic designer and manufacturer
of custom automated assembly systems, including dials, synchronous and
non-synchronous transport systems and special handling, testing and
measuring systems and complete multi-unit automatic production systems.
These products are for use in the automotive industry, as well as the
major appliance and other high volume industries. Integrated automation
product line revenues for 1994, 1993 and 1992 accounted for 57.9%, 53.5%
and 54.3%, respectively, of total revenues for the Company.
The Company's flexible transfer lines are a combination of
individual work stations arranged in the required sequence, connected by
work transfer devices and integrated with interlocked controls. All types
of machining operations, such as drilling, tapping, reaming, boring and
milling are efficiently and economically combined on transfer machines.
Dial, rotary, in-line and pallet-type are among the different types of
flexible transfer line equipment supplied by the Company. Flexible
transfer lines have traditionally been used in the automotive industry for
producing identical components at high production rates with minimal
manual part handling and are applicable to other industries with high
volume requirements. Flexible transfer lines accounted for approximately
65.9%, 64.2% and 61.7% of integrated automation product line revenues in
1994, 1993 and 1992, respectively.
The Company's automated assembly systems are used to assemble a
variety of products, including automotive airbags, household appliances,
wing spars for commercial airlines, and automotive engines and
transmissions. The nonsynchronous assembly systems are used to integrate
independent self-powered assembly stations with a continuous conveyor line
and consist of three principal types of stations: manual stations, which
only require that a part be placed on a pallet; dedicated stations, which
perform multiple actions on a family of parts; and robotic stations, which
can be programmed to perform many functions on a number of parts.
Robotics incorporated in the Company's automated assembly systems are not
produced by the Company. Each automated assembly system is custom
engineered by the Company to meet a customer's specific requirements, with
standardized components normally accounting for only 10% to 15% of any
system. Automated assembly systems accounted for approximately 27.2%,
23.1% and 30.2% of integrated automation product line revenues in 1994,
1993 and 1992, respectively.
The integrated automation product line also includes broach and
piston turning machines. Both are metalcutting machines. Broach machines
are used to push or pull a multi-tooth cutting tool or the workpiece in
relation to each other to remove material. Broach machines have the
ability to rough and finish in one pass thereby increasing productivity.
As the name implies, piston turning machines are used to manufacture
pistons. The machine is unique in that it is capable of producing the
complex shapes required in piston manufacturing.
Automation Measurement and Control. The Company designs and manufactures
a comprehensive line of dimensional measurement products. These include
coordinate measurement machines, gaging products and metrological
instruments. The Company is a leader in the implementation of flexible
measurement systems, which can be supplied either on a standalone basis or
as an integral part of manufacturing systems. The Company also provides a
wide range of services, including gage certification services. In
addition, the Company supplies a broad range of industrial control
products, including programmable industrial computers, computer numerical
controls, servo drive systems, operator interface systems and specialized
software solutions. These products are designed for use both with the
Company's products and the products of other manufacturers. Automation
measurement and control product line revenues were 10.1%, 10.9% and 8.3%
of total revenues for the Company in 1994, 1993 and 1992, respectively.
Customers, Sales, and Distribution
The Company's products and manufacturing systems are sold
primarily to the automotive, construction, aerospace, defense, appliance,
energy and electronics industries. Typically, the ten largest customers
are large multi-national companies that account for approximately 50% to
60% of the Company's total sales, although the composition of these
customers varies from year to year. One customer, Ford Motor Company,
accounted for approximately 15.9%, 29.7% and 20.2% of the Company's sales
in 1994, 1993 and 1992, respectively. For the same periods, Chrysler
Corporation accounted for approximately 14.2%, 4.4% and 5.9% of sales,
respectively.
A network of sales representatives/distributors is used to sell
the Company's products on a worldwide basis. The sales representative/
distributor network is assisted and supervised by Company sales managers
located in key market areas. The Company's direct sales force is paid
a salary plus commission and its distributors are paid on a commission-
only basis.
Sales Arrangements
The Company sells substantially all of its products under fixed
price contracts. These contracts are priced after the Company analyzes,
among other things, material, labor, overhead and custom engineering costs
involved in the contract.
Fixed price contracts entail the risk of cost overruns. The
risk of such overruns typically increases in proportion to the complexity
and uniqueness of the engineering and manufacturing tasks involved under
any particular contract. There can be no assurance that the Company will
not be adversely affected by significant cost overruns on its fixed price
contracts.
A substantial portion of the products manufactured by the
Company involves long lead times from receipt of a customer order to the
shipment of a completed machine. Under the terms of its sales contracts,
and consistent with industry practice, the Company receives most of its
sales price upon shipment of the product.
Manufacturing Capacity
The Company manufactures its products at thirteen facilities
with its primary facilities located in Fond du Lac and Janesville,
Wisconsin; Fraser and Port Huron, Michigan; Dayton, Ohio; Knowsley,
England; and Wendlingen, Germany. The Fond du Lac facility currently
operates three shifts a day, five days a week. The Janesville facility is
currently operating three shifts, six days a week. The Fraser and Port
Huron facilities are currently operating two shifts a day, six days a
week. The Dayton facility is currently operating one shift, five days a
week. The Knowsley and Wendlingen facilities are currently operating two
shifts a day, five days a week. Overtime charges at the Company's
facilities are not material.
Product Line Competition
Automation Technology. The market for machine tools is highly
competitive, with substantial competition from both U.S. and foreign
manufacturers. Competition is mainly from manufacturers of the same types
of machines produced by the Company. However, manufacturers of different
machine types, certain customers, and third party integrators are also
competitors. Principal competitive factors for machine tools include
product performance, delivery, price and service. The Company's
Menominee, Michigan foundry competes with a number of foundries in its
respective market area.
Integrated Automation. The traditional customer base for domestic
flexible transfer line sales has been the major automobile manufacturers.
This limited customer base and the large scope of the projects involved
have made this a very competitive market. The size of the projects has
resulted in a competitive environment where the major competitors are
large and often have established relationships with their customers.
Foreign competitors have obtained limited business in this market which
had been traditionally dominated by domestic suppliers. The international
customer base for flexible transfer lines includes all major European,
Asian and U.S. transplant automobile manufacturers. This market exhibits
the same competitive characteristics as the U.S. market. However, the
Company believes that its established presence in the European flexible
transfer line market and its manufacturing capabilities in Germany and
England leave the Company favorably positioned to compete effectively in
this market.
The domestic market for automated assembly systems is also
competitive. Competitive factors for automated assembly systems include
engineering concepts, pricing, product performance and delivery.
Approximately 70 North American companies have been identified as
competitors for the type of automated assembly systems supplied by the
Company. Many of these competitors specialize in a specific type of
assembly system and compete mainly on a regional basis. The automated
assembly systems manufactured by the Company are substantially custom
engineered products and are purchased largely by both major corporations
and small independent companies based in the U.S. Due to the nature of
its products and its customer base, the Company believes that to date it
has not faced significant foreign competition in automated assembly
systems. In the international market, the Company believes that the
relationships already established in the European automotive market will
provide new opportunities for sales of automated assembly systems.
Automation Measurement and Control. The markets for the automation
measurement and control product line is highly competitive. Currently,
the Company believes that it is among the top five coordinate measurement
producers in the world. This market has become increasingly global in
nature with significant competition coming from foreign producers.
Principal competitive factors for coordinate measurement systems include
quality, delivery time, service and price.
Established customer relationships and customer preference for a
standardized control produced by one manufacturer has hindered the
Company's ability to penetrate some of the larger segments in the market
for industrial control products. The Company believes that it has
successfully pursued niche and non-traditional markets in the broad motion
control marketplace as exemplified by sales to robotics, photographic
equipment and packaging equipment manufacturers.
Raw Materials
Because the Company manufactures most of the parts used in its
products, the basic raw materials used in the Company's production are
iron and steel. The Company's foundry produces gray iron and ductile
castings which are major parts in its machine tools. Certain components
are purchased, such as sheet metal, robotics, electric motors, bearings,
steel castings and electronic and electrical components. All such
materials and components used are available from a number of sources. The
Company is not dependent on any supplier that cannot be readily replaced
and has not experienced difficulty in obtaining necessary purchased
materials.
Patents and Trademarks
The Company possesses rights under a number of domestic and
foreign patents and trademarks relating to its products and business.
While the Company considers that patents and trademarks are important in
the operation of its business, its business is not dependent on any single
patent or trademark or group of patents or trademarks. However, the
Company considers the following trade names or trademarks to be material
to its business: Giddings & Lewis and the Giddings & Lewis logo.
Research and Development
As of December 31, 1994, the Company had 47 employees in its
engineering departments engaged, wholly or partly, in activities relating
to Company-sponsored research, 41 of whom have engineering degrees.
Another 649 employees were actively involved in product development,
custom engineering and software development. Of these, 467 have degrees
in engineering. A summary of research and product development
expenditures for the last three years is shown in the following table:
Research and Development Expenditures
(in thousands)
1994 1993 1992
Research and development expense
pertaining to new products or
significant improvements to
existing products $ 3,857 $ 4,064 $ 3,841
All other product development and
engineering expenditures related
to ongoing refinements,
improvements of existing products,
and custom engineering 63,541 53,349 52,684
------ ------ ------
Total expenditures for research,
product development, and
engineering $67,398 $57,413 $56,525
======= ======= =======
Employees
As of December 31, 1994, the Company had 3,788 employees, of
whom 1,814 were hourly employees and 1,974 were salaried employees. The
Company had 500 hourly and salary employees covered by collective
bargaining agreements at December 31, 1994. At the Company's facility in
Janesville, Wisconsin, 258 employees are covered by collective bargaining
agreements expiring in March 1995. The Company's remaining collective
bargaining agreements expire at various times from 1996 through 1997. The
Company considers its employee relations to be good.
Executive Officers
The following table sets forth certain information, as of March
1, 1995, regarding the executive officers of the Company. All executive
officers serve at the pleasure of the Board of Directors.
Name Age Position
Joseph R. Coppola 64 Chairman, Chief Executive Officer
and Director
Richard C. 53 Vice President - Finance,
Kleinfeldt Secretary and Director
Heinz G. Anders 61 Group Vice President and General
Manager-European Operations
Douglas E. Barnett 35 Treasurer
Todd A. Dillmann 39 Corporate Counsel and Assistant
Secretary
Robert D. Kamphuis 37 Vice President and Corporate
Controller
Robert N. Kelley 44 Vice President - Administration
Robert W. Kynast 53 Group Vice President and General
Manager - Automation Measurement
and Control Group
Stephen M. Peterson 45 Vice President - Worldwide Sales
and Marketing
Edward B. Schenck 54 Group Vice President and General
Manager - Integrated Automation
Group
James B. Simon 53 Group Vice President and General
Manager - Automation Technology
Group
Joseph R. Coppola has served as Chairman of the Board and Chief Executive
Officer of the Company since July 1993. From 1983 to 1993, Mr. Coppola
was Senior Vice President of Manufacturing Services for Cooper Industries,
Inc.
Richard C. Kleinfeldt has served as Vice President - Finance, Secretary
and a Director of the Company since 1989 and prior thereto Mr. Kleinfeldt
had been Vice President - Finance of the Giddings & Lewis Machine Tool
Division of United Dominion since 1987. Mr. Kleinfeldt has been an
employee of the Company since 1964.
Heinz G. Anders has served as Group Vice President and General Manager of
the Company's European Operations since February 1994. From 1981 until
assuming his current position, Mr. Anders was Managing Director for
Deutsche Gardner-Denver GmbH & Co. in Westhausen, Germany.
Douglas E. Barnett has served as Treasurer of the Company since February
1991. Prior thereto, Mr. Barnett had been an investment banker with First
Boston Corporation since 1989. Prior to joining First Boston, Mr. Barnett
was associated with Price Waterhouse and Van Kampen Merritt in various
financial positions.
Todd A. Dillmann has served as Corporate Counsel and Assistant Secretary
of the Company since January 1, 1995 and as Corporate Counsel since
November 1, 1991. Prior to that he was Director of Legal Services for
Kearney & Trecker Corporation.
Robert D. Kamphuis has served as Vice President and Corporate Controller
of the Company since February 1991. Mr. Kamphuis rejoined the Company as
Treasurer in August 1989 from Scott Paper Company where he was the
Controller of the Foodservice Division. From January 1987 to August 1987,
Mr. Kamphuis was the Manager of Accounting for Giddings & Lewis Machine
Tool and prior thereto he had served as the Manager of Accounting for
Giddings & Lewis Electronics and Davis Tool.
Robert N. Kelley has served as Vice President - Administration of the
Company since July 1991. From April 1986 until June 1989, Mr. Kelley was
the Director of Human Resources of Combustion Engineering, Inc. From June
1989 until joining the Company, Mr. Kelley was Vice President of Human
Resources and Administration of Premier Refractories & Chemicals, Inc.
Robert W. Kynast has served as Group Vice President and General Manager of
the Company's Automation Measurement and Control Group since January 1991
and prior thereto Mr. Kynast was General Manager of the Company's NEXES/R/
Automation Division since June 1989. From 1977 until joining the Company
in 1989, Mr. Kynast held various management positions within Cross &
Trecker.
Stephen M. Peterson has served as Vice President - Worldwide Sales of the
Company since December 1990. Mr. Peterson started with the Company as a
Tool Design Apprentice and progressed through the sales organization to
his present position. He has been an employee of the Company since 1969.
Edward B. Schenck has served as Group Vice President and General Manager
of the Company's Integrated Automation Group since September 1994 and
prior thereto Mr. Schenck had been Vice President and General Manager of
the Company's Fraser operations since December 1991. Mr. Schenck joined
the Company in February 1991 as Senior Vice President of Operations at
Janesville. Prior to joining the Company he held various operations
management positions at General Electric.
James B. Simon has served as Group Vice President and General Manager of
the Company's Automation Technology Group since December 1994 and prior
thereto Mr. Simon had been Vice President - Engineering/Total Quality of
the Company since 1989. From 1987 to 1989 Mr. Simon had been Vice
President - Engineering of the Giddings & Lewis Machine Tool Division.
Mr. Simon has been an employee of the Company since 1965.
Backlog
Information about backlog is contained under "Management's
Discussion and Analysis" on pages 15 to 18 of the Company's 1994 Annual
Report to Shareholders and such information is hereby incorporated herein
by reference. In some instances involving automotive customers, bookings
are awarded and included in the backlog with the formal purchase orders
obtained at a later time. Such practice is standard in the industry
and the Company has historically experienced no significant cancellation
of such bookings. At December 31, 1994, these bookings amounted to
$99 million.
Foreign Operations and Export Sales
Information about the Company's foreign operations and export
sales is contained in Note 10 of Notes to Consolidated Financial
Statements on page 34 of the Company's 1994 Annual Report to Shareholders
and such information is hereby incorporated herein by reference.
Environmental Matters
The Company and the industry in which it competes are subject to
environmental laws and regulations concerning emissions to the air,
discharges to waterways and the generation, handling, storage,
transportation, treatment and disposal of waste materials. It is the
Company's policy to comply with all applicable environmental, health and
safety laws and regulations. These laws and regulations are constantly
evolving and it is difficult to predict accurately the effect they will
have on the Company in the future. The Company does not presently
anticipate that compliance with currently applicable environmental
regulations and controls will significantly affect its competitive
position, capital spending or earnings during 1995. For further
information on environmental matters, see Item 3 of this Annual Report on
Form 10-K.
Item 2. Properties
The following table sets forth certain information, as of
December 31, 1994, relating to the Company's principal facilities. See
"Manufacturing Capacity." All of the real property listed is owned by the
Company.
Properties
Approximate Approximate
Land Area in Floor Area in
Location Acres Square Feet Principal Uses
Fond du Lac, WI 24.3 457,000 General offices and
design and manufacture
of automated machine
tools, tools and
accessories
Fond du Lac, WI 10.5 45,000 Design and manufacture
of automated machine
tools, tools and
accessories
Fond du Lac, WI 4.9 57,000 Design and manufacture
of computer-based
electronic control
units and production
of related software
Janesville, WI 12.3 227,000 Design and manufacture
of automated assembly
systems
Janesville, WI 5.5 82,000 Design and manufacture
of automated assembly
systems
Dayton, OH 19.8 294,000 Design and manufacture
of measurement systems
Fraser, MI 31.1 244,000 Design and manufacture
of machining systems
Warren, MI 1.9 24,000 Manufacture of machine
components
Port Huron, MI 12.5 143,000 Design and manufacture
of special machine
tools
Menominee, MI 7.0 142,000 Manufacture of
castings
Tecumseh, 9.0 70,000 Manufacture of
Canada machining systems
Wendlingen, 11.5 257,000 Design and manufacture
Germany of machining systems
Knowsley, 5.7 125,000 Design and manufacture
England of machining systems
The Company also owns one other facility with floor space of
approximately 23,000 square feet. The Company is currently in the process
of selling this facility.
Item 3. Litigation
The Company is involved in various environmental matters,
including matters in which the Company and certain of its subsidiaries
have been named as potentially responsible parties under the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA"). These
matters include a soil and water contamination matter at the Company's
former West Allis, Wisconsin facility. In 1992, the Company was notified
by the Wisconsin Department of Natural Resources ("WDNR") of contamination
at the West Allis site. In 1994, the Company sold most of the site,
including the manufacturing facility. The Company is currently
implementing a WDNR approved clean-up plan on the nine acre portion of the
site that was not sold.
The Company has established accruals for all environmental
contingencies of which management is currently aware in accordance with
generally accepted accounting principles. In establishing these accruals,
management considered (a) reports of environmental consultants retained by
the Company, (b) the costs incurred to date by the Company at sites where
clean-up is presently ongoing and the estimated costs to complete the
necessary remediation work remaining at such sites, (c) the financial
solvency, where appropriate, of other parties that have been responsible
for effecting remediation at specified sites, and (d) the experience of
other parties who have been involved in the remediation of comparable
sites. The accruals recorded by the Company with respect to environmental
matters have not been reduced by potential insurance or other recoveries
and are not discounted. Although the Company has and will continue to
pursue such claims against insurance carriers and other responsible
parties, future potential recoveries remain uncertain and, therefore, were
not recorded as a reduction to the estimated gross environmental
liabilities. Based on the foregoing and given current information,
management believes that future costs in excess of the amounts accrued on
all presently known and quantifiable environmental contingencies will not
be material to the Company's financial position or results of operations.
In another matter, a Michigan Department of Natural Resources
investigation into alleged environmental violations at the Company's
Menominee, Michigan facility has resulted in the issuance of a criminal
complaint against the Company and two of its employees. The complaint
generally is focused on alleged releases of hazardous substances and the
alleged illegal treatment and disposal of hazardous wastes. Two civil
lawsuits are also pending which allege improper disposal and emissions at
this facility. The Company is vigorously defending itself against all
charges and allegations. Information presently available to the Company
does not enable it to reasonably estimate potential civil or criminal
penalties, or remediation costs, if any, related to this matter.
The Company is also involved in other litigation and
proceedings, including product liability claims. In the case of product
liability, the Company is partially self-insured and has accrued for all
claim exposure for which a loss is probable and reasonably estimable.
Based on current information, management believes that future costs in
excess of the amounts accrued for all such existing litigation will not be
material to the Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders during the
quarter ended December 31, 1994.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The portion of page 19 under the caption "Market Prices and
Dividends" which describes the market for the Company's Common Stock, $.10
par value, and Note 4 of Notes to Consolidated Financial Statements on
pages 26 and 27 which describes restrictions on dividends and which are
contained in the Company's 1994 Annual Report to Shareholders are hereby
incorporated herein by reference in response to this Item.
Item 6. Selected Financial Data
The information set forth in the table on page 14 of the
Company's 1994 Annual Report to Shareholders under the caption "Five-Year
Summary" is hereby incorporated herein by reference in response to this
Item.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information set forth on pages 15 through 19 in the
Company's 1994 Annual Report to Shareholders under the caption
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" is hereby incorporated herein by reference in response to
this Item.
Item 8. Financial Statements and Supplementary Data
The consolidated statements of income, cash flows and changes in
shareholders' equity for each of the years in the three-year period ended
December 31, 1994, and the related consolidated balance sheets of the
Company as of December 31, 1994 and 1993, together with the related notes
thereto and the report of independent auditors, all set forth on pages 20
through 35 of the Company's 1994 Annual Report to Shareholders, are hereby
incorporated herein by reference in response to this Item.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with the
Company's independent auditors regarding accounting and financial
disclosure required to be reported pursuant to this Item.
PART III
Item 10. Directors and Executive Officers of the Registrant
Pursuant to Instruction G, the information required by this Item
with respect to directors and Section 16 compliance is hereby incorporated
herein by reference from the information under the captions entitled
"Election of Directors" and "Miscellaneous-Other Matters" set forth in
the Company's definitive Proxy Statement for its 1995 Annual Meeting of
Shareholders ("Proxy Statement")*. Information with respect to the
executive officers of the Company appears in Part I, pages 9 through 11,
of this Annual Report on Form 10-K.
* The Proxy Statement will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the
end of the Company's fiscal year.
Item 11. Executive Compensation
Pursuant to Instruction G, the information required by this Item
is hereby incorporated herein by reference from the information under the
captions entitled "Board of Directors-Director Compensation" and
"Executive Compensation" set forth in the Proxy Statement; provided,
however, that the subsection entitled "Executive Compensation - Report on
Executive Compensation" shall not be deemed to be incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Pursuant to Instruction G, the information required by this Item
is hereby incorporated herein by reference from the information under the
caption entitled "Principal Shareholders" set forth in the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
Pursuant to Instruction G, the information required by this Item
is hereby incorporated by reference herein from the information under the
captions entitled "Election of Directors" and "Executive Compensation-
Executive Relocation Program" set forth in the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial statements - The financial statements listed
in the accompanying index to financial statements and
financial statement schedules are incorporated by
reference in this Annual Report on Form 10-K.
2. Financial statement schedules - The financial
statement schedule listed in the accompanying index to
financial statements and financial statement schedules
is filed as part of this Annual Report on Form 10-K.
3. Exhibits - The exhibits listed in the accompanying
index to exhibits are filed as part of this Annual
Report on Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1994.
<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, on March 13, 1995.
GIDDINGS & LEWIS, INC.
By /s/Joseph R. Coppola
Joseph R. Coppola
Chairman and Chief Executive
Officer
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 indicated on March 13, 1995.
Name Title
/s/Joseph R. Coppola Chairman, Chief Executive
Joseph R. Coppola Officer and Director
(Principal Executive Officer)
/s/Richard C. Kleinfeldt Vice President - Finance,
Richard C. Kleinfeldt Secretary and Director
(Principal Financial and
Accounting Officer)
/s/Albert J. Baciocco, Jr. Director
Albert J. Baciocco, Jr.
/s/John A. Becker Director
John A. Becker
/s/Ruth M. Davis Director
Ruth M. Davis
/s/Peter P. Donis Director
Peter P. Donis
/s/Clyde H. Folley Director
Clyde H. Folley
/s/Benjamin F. Garmer, III Director
Benjamin F. Garmer, III
/s/Ben R. Stuart Director
Ben R. Stuart
/s/James R. Underkofler Director
James R. Underkofler
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
Page
---------------------------
Annual Report
Form 10-K to Shareholders
Consolidated statements of income
for each of the three years in the
period ended December 31, 1994 - 20
Consolidated statements of cash
flows for each of the three years in
the period ended December 31, 1994 - 21
Consolidated balance sheets at
December 31, 1994 and 1993 - 22
Consolidated statements of changes
in shareholders' equity for each of
the three years in the period ended
December 31, 1994 - 23
Notes to consolidated financial
statements - 24
Report of Independent Auditors - 35
Consolidated financial statement
schedule: -
II - Valuation and
qualifying accounts 20 -
All other financial statement schedules are omitted because the required
information is not present or is not present in amounts sufficient to
require submission of the schedules, or because the information required
is included in the consolidated financial statements and notes thereto.
<PAGE>
Schedule II
GIDDINGS & LEWIS, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1994, 1993 and 1992
(in thousands)
Additions
Balance at charged Balance at
beginning to end of
Classification of year expense Deductions year
Receivables -
Allowance for
doubtful accounts:
1994 $ 973 $ 172 $ (223) $ 922
1993 1,115 334 (476) 973
1992 1,158 84 (127) 1,115
Inventories -
Allowance for
obsolescence and
loss:
1994 $5,900 $2,553 $ (1,075) $7,378
1993 5,003 2,730 (1,833) 5,900
1992 4,305 1,878 (1,180) 5,003
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Exhibit Description
(3.1) Restated Articles of Incorporation of Giddings &
Lewis, Inc., as amended to date [Incorporated by
reference to Exhibit 3.1 to Giddings & Lewis, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
July 4, 1993]
(3.2) By-Laws of Giddings & Lewis, Inc., as amended to date
[Incorporated by reference to Exhibit 3.2 to
Giddings & Lewis, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended July 4, 1993]
(4.1) Article IV of the Restated Articles of Incorporation
of Giddings & Lewis, Inc., as amended to date
[Incorporated by reference to Exhibit 3.1 to
Giddings & Lewis, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended July 4, 1993]
(4.2) Credit Agreement among Giddings & Lewis, Inc.,
Giddings & Lewis GmbH, Giddings & Lewis AG, the
Institutions from time to time party thereto as
Lenders, the Institutions from time to time party
thereto as Issuing Banks, Citicorp North America,
Inc., as Agent, and Citicorp Investment Bank Limited,
as London Agent, dated as of December 21, 1992.
[Incorporated by reference to Exhibit 4.2 to Giddings
& Lewis, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1992]
(4.3) Amendment to Credit Agreement among Giddings & Lewis,
Inc., Giddings & Lewis GmbH, Giddings & Lewis Ltd., the
Institutions from time to time party thereto as
Lenders, the Institutions from time to time party
thereto as Issuing Banks, Citicorp North America,
Inc., as Retiring Agent, Citibank N.A., as Agent,
Citicorp Investment Bank Limited, as Retiring London
Agent, and Citibank International plc, as an Agent, dated
as of December 21, 1994
(4.4) Rights Agreement, dated as of February 7, 1990,
between Giddings & Lewis, Inc. and First Wisconsin
Trust Company [Incorporated by reference to Exhibit
4.4 to Giddings & Lewis, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1993]
(4.5) Amendment to Rights Agreement between Giddings &
Lewis, Inc. and First Wisconsin Trust Company, dated
as of October 31, 1991 [Incorporated by reference to
Exhibit 4.5 to Giddings & Lewis, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1993]
(10.1)* Giddings & Lewis, Inc. 1989 Stock Option Plan
[Incorporated by reference to Exhibit 4.1 to Giddings
& Lewis, Inc.'s Form S-8 Registration Statement
(Registration No. 33-31951)]
(10.2)* Giddings & Lewis, Inc. 1989 Restricted Stock Plan
[Incorporated by reference to Exhibit 4.1 to Giddings
& Lewis, Inc.'s Form S-8 Registration Statement
(Registration No. 33-31950)]
(10.3)* Giddings & Lewis, Inc. Independent Director Stock
Based Incentive Plan [Incorporated by reference to
Exhibit 10.4 to Giddings & Lewis, Inc.'s Form S-4
Registration Statement (Registration No. 33-43061)]
(10.4)* Giddings & Lewis, Inc. 1993 Stock and Incentive Plan
[Incorporated by reference to Exhibit 4.1 to Giddings
& Lewis, Inc.'s Form S-8 Registration Statement
(Registration Statement No. 33-64936)]
(10.5)* Form of Key Executive Employment and Severance
Agreement (covering officers other than Joseph R.
Coppola) [Incorporated by reference to Exhibit 10.5
to Giddings & Lewis, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1993]
(10.6)* Employment Agreement, dated June 30, 1993, by and
between Giddings & Lewis, Inc. and Joseph R. Coppola
[Incorporated by reference to Exhibit 10.1 to Giddings
& Lewis, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended October 3, 1993]
(10.7)* Key Executive Employment and Severance Agreement,
dated as of October 27, 1993, by and between Giddings
& Lewis, Inc. and Joseph R. Coppola [Incorporated by
reference to Exhibit 10.6 to Giddings & Lewis, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
October 3, 1993]
(10.8)* Employment Agreement by and between Heinz Anders and Giddings
& Lewis GmbH, dated as of January 12, 1994
(10.9)* Management Incentive Compensation Program
[Incorporated by reference to Exhibit 10.9 to
Giddings & Lewis, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1993]
(10.10)* Supplemental Executive Retirement Plan (covering
officers of the Company other than Joseph R. Coppola)
[Incorporated by reference to Exhibit 10.10 to
Giddings & Lewis, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1993]
(10.11)* Supplemental Retirement Program for Joseph R. Coppola
[Incorporated by reference to Exhibit 10.12 to
Giddings & Lewis, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1993]
(10.12)* Giddings & Lewis, Inc. Deferred Compensation Plan for
Non-Employee Directors [Incorporated by reference to
Exhibit 10.13 to Giddings & Lewis, Inc.'s Annual
Report on Form 10-K for the year ended December 31,
1993]
(10.13)* Giddings & Lewis, Inc. Deferred Compensation Plan and
Trust Agreement [Incorporated by reference to Exhibit
10.14 to Giddings & Lewis, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1993]
(13) Portions of the 1994 Annual Report to Shareholders
that are incorporated by reference herein
(21) List of Subsidiaries of Giddings & Lewis, Inc.
(23) Consent of Ernst & Young LLP
(27) Financial Data Schedule
(99) Proxy Statement for the 1995 Annual Meeting of
Shareholders
[The Proxy Statement for the 1995 Annual Meeting of
Shareholders will be filed with the Securities and
Exchange Commission under Regulation 14A within 120
days after the end of the Company's fiscal year;
except to the extent incorporated by reference, the
Proxy Statement for the 1995 Annual Meeting of
Shareholders shall not be deemed to be filed with the
Securities and Exchange Commission as part of this
Annual Report on Form 10-K]
* A management contract or compensatory plan or arrangement.
AMENDMENT NO. 1
Dated as of December 21, 1994
to
Credit Agreement
Dated as of December 21, 1992
THIS AMENDMENT NO. 1 dated as of December 21, 1994 ("Amendment")
is entered into by and among Giddings & Lewis, Inc., a Wisconsin
corporation (the "U.S. Borrower"), Giddings & Lewis, Ltd., a corporation
organized under the laws of the United Kingdom, Giddings & Lewis GmbH, a
corporation organized under the laws of the Republic of Germany, the
"Lenders" party to the Credit Agreement referred to below, the "Issuing
Banks" party to the Credit Agreement referred to below, Citicorp North
America, Inc., a Delaware corporation (the "Retiring Agent"), Citibank,
N.A. ("Citibank"), as agent for the Lenders and Issuing Banks (the
"Agent"), Citicorp Investment Bank Limited (the "Retiring London Agent"),
and Citibank International plc, as an agent for the Lenders (the "London
Agent"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Credit Agreement
referred to below.
PRELIMINARY STATEMENT
A. The U.S. Borrower, the Multicurrency Borrowers, the
Lenders, the Issuing Banks, the Retiring Agent and the Retiring London
Agent are parties to that certain Credit Agreement dated as of December
21, 1992 (the "Credit Agreement"), pursuant to which the Lenders and the
Issuing Banks have agreed to make certain loans and other financial
accommodations to the U.S Borrower and the Multicurrency Borrowers.
B. The U.S. Borrower, the Multicurrency Borrowers, the
Lenders, the Issuing Banks, the Retiring Agent, the Agent, the Retiring
London Agent and the London Agent have agreed to amend the Credit
Agreement on the terms and subject to the conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises set forth
above, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the U.S. Borrower, the
Multicurrency Borrowers, the Lenders, the Issuing Banks, the Retiring
Agent, the Agent and the London Agent agree as follows:
SECTION 1. Amendment of the Credit Agreement. Effective as of
the date first above written, subject to the fulfillment of the conditions
precedent set forth in Section 3 below, the Credit Agreement is hereby
amended as follows:
1.1. Section 1.01 is amended to delete the defined terms
"Advance", "Applicable Eurocurrency Rate Margin", "Applicable Lending
Office", "Letter of Credit Reimbursement Agreement", "Majority Lenders",
"Maturity Date", "Multicurrency Borrowers", "Obligation", "Reimbursement
Obligation", "Performance Level I", "Performance Level II" and
"Termination Date" in their entirety and to substitute the following
therefor:
"Advance" means an advance by a Lender to the U.S. Borrower
pursuant to Sections 2.01 and 2.03, and refers to a Base Rate Advance
or a Eurodollar Rate Advance (each of which shall be a "Type" of
Advance).
"Applicable Eurocurrency Rate Margin" means, as of any date, in
respect of the then applicable Performance Level, a per annum rate as
set forth below:
Applicable Eurocurrency Rate Margin
(per annum rate)
Applicable
Performance Level Eurocurrency Rate Margin
Performance Level I 0.2250%
Performance Level II 0.2750%
Performance Level III 0.3000%
Performance Level IV 0.3375%
Performance Level V 0.4250%;
provided that if, in respect of any calendar month, the sum of (a)
the average aggregate principal amount of Advances outstanding during
such calendar month, (b) the average aggregate principal amount of B
Advances outstanding during such calendar month, (c) the average
aggregate principal amount of Multicurrency Advances outstanding
during such calendar month, and (d) the average aggregate face amount
of all outstanding Letters of Credit during such calendar month,
shall exceed an amount equal to fifty percent (50%) of the average
aggregate Commitments during such calendar month, then the Applicable
Eurocurrency Rate Margin during the month immediately succeeding such
calendar month shall be the per annum rate as set forth below
opposite the Performance Level which is applicable during such
immediately succeeding calendar month:
Applicable Eurocurrency Rate Margin
(per annum rate)
During the Calendar Month
Immediately Succeeding the Calendar Month
of Excess Utilization
Applicable
Performance Level Eurocurrency Rate Margin
Performance Level I 0.2750%
Performance Level II 0.3250%
Performance Level III 0.3500%
Performance Level IV 0.3875%
Performance Level V 0.5500%
"Applicable Lending Office" means, with respect to each Lender,
(i) such Lender's Domestic Lending Office in the case of a Base Rate
Advance, (ii) such Lender's Eurocurrency Lending Office(s) designated
on Schedule I or in an Assignment and Acceptance or other written
notice to the Agent and London Agent in the case of each Type of
Eurocurrency Advance and (iii) the office of such Lender notified by
such Lender to the Agent as its Applicable Lending Office with
respect to a given B Advance, in the case of B Advances.
"Letter of Credit Reimbursement Agreement" means, with respect
to a Letter of Credit, such form of application therefor and form of
reimbursement agreement therefor (whether in a single or several
documents, taken together) as the Issuing Bank from which the Letter
of Credit is requested may employ in the ordinary course of business
for its own account, with such modifications thereto as may be agreed
upon by the Issuing Bank and the U.S. Borrower (and, with respect to
any Letter of Credit issued for the account of any Subsidiary of the
U.S. Borrower, such Subsidiary) and as are not materially adverse (in
the judgment of the Issuing Bank) to the interests of the Lenders;
provided, however, in the event of any conflict between the terms of
any Letter of Credit Reimbursement Agreement and this Agreement, the
terms of this Agreement shall control.
"Majority Lenders" means Lenders as of a given time whose Pro
Rata Shares, in the aggregate, are greater than sixty-six and two-
thirds percent (66-2/3%); provided, however, that if any of the
Lenders shall have failed to fund its Pro Rata Share of any Advance
or Multicurrency Advance requested under this Agreement which such
Lender is obligated to fund under the terms of this Agreement and any
such failure has not been cured, then for so long as such failure
continues, "Majority Lenders" means the Lenders (excluding all
Lenders whose failure to fund their respective Pro Rata Shares of
such Advances or Multicurrency Advances have not been cured) whose
Pro Rata Shares are greater than sixty-six and two-thirds percent
(66-2/3%) of the aggregate Pro Rata Shares of such Lenders; provided,
further, however, that if the Commitments have been terminated
pursuant to the terms of this Agreement, "Majority Lenders" means
Lenders (without regard to such Lenders' performance of their
respective obligations hereunder) whose aggregate ratable shares
(stated as a percentage) of the aggregate outstanding principal
balance of all Advances and Multicurrency Advances are greater than
sixty-six and two-thirds percent (66-2/3%); provided, further,
however, that if the Commitments shall have been terminated, all
Advances and Multicurrency Advances shall have been repaid in full
and no Letters of Credit shall then be outstanding, "Majority
Lenders" shall mean Lenders holding at least 66-2/3% of the then
aggregate unpaid principal amount of the B Notes. For purposes of
this definition, all amounts will be calculated in U.S. dollar
equivalents using the Exchange Rates in effect as of the date of
calculation.
"Maturity Date" means December 21, 1997.
"Multicurrency Borrowers" means Giddings & Lewis AG (or such
Affiliate of Giddings & Lewis AG to which the operations of the
division of Giddings & Lewis AG known, as of the Closing Date, as
Giddings & Lewis AG, U.K. Branch may be transferred as permitted by
the terms of this Agreement), Giddings & Lewis, Ltd. and Giddings &
Lewis GmbH; and "Multicurrency Borrower" means any of the
Multicurrency Borrowers.
"Obligation" means all Advances, B Advances, Multicurrency
Advances, debts, liabilities, obligations, covenants and duties owing
by the U.S. Borrower and/or the Multicurrency Borrowers to the Agent,
London Agent, any Lender, any Issuing Bank, any Affiliate of the
Agent or London Agent, any Lender or any Issuing Bank, of any kind or
nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, arising under this Agreement, the
Notes, the B Notes, the Letters of Credit, or the other Loan
Documents, and whether or not for the payment of money, whether
arising by reason of extension of credit, opening or amendment of a
Letter of Credit or payment of any draft drawn thereunder, loan,
guaranty, indemnification, or in any other manner, whether direct or
indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising
and however acquired. The term includes, without limitation, all
interest, charges, expenses, fees, attorneys' fees and disbursements
and any other sum chargeable to the U.S. Borrower or either
Multicurrency Borrower under this Agreement or any other Loan
Document.
"Performance Level I" means that level of financial performance
of the U.S. Borrower, measured as of the end of a fiscal quarter of
the U.S. Borrower, at which all of the following tests have been met:
(i) the Interest Coverage Ratio for the then most recently ended
four (4) fiscal quarter period of the U.S. Borrower is greater
than or equal to 5.25 to 1;
(ii) the Funded Debt to Capitalization Ratio for the then most
recently ended four (4) fiscal quarter period of the U.S.
Borrower is less than or equal to 0.35 to 1; and
(iii) no Event of Default has occurred and is continuing
unwaived at the end of the initial fiscal quarter in which the
tests in clauses (i) and (ii) have been met.
"Performance Level II" means that level of financial performance
of the U.S. Borrower, measured as of the end of a fiscal quarter of
the U.S. Borrower, at which all of the following tests have been met:
(i) the Interest Coverage Ratio for then most recently ended
four (4) fiscal quarter period of the U.S. Borrower is greater
than or equal to 4.8 to 1;
(ii) the Funded Debt to Capitalization Ratio for the then most
recently ended four (4) fiscal quarter period of the U.S.
Borrower is less than or equal to 0.38 to 1;
(iii) no Event of Default has occurred and is continuing
unwaived at the end of the initial fiscal quarter in which the
tests in clauses (i) and (ii) have been met; and
(iv) the conditions of Performance Level I are not satisfied as
of such date.
"Reimbursement Obligation" means, as to the Lenders, the
aggregate non-contingent reimbursement or repayment obligations as of
a Reimbursement Date of the U.S. Borrower (together with the joint
and several non-contingent reimbursement or repayment obligations of
the Subsidiary of the U.S. Borrower for whose account the Letter of
Credit is issued, if applicable) with respect to amounts drawn under
Letters of Credit (i) denominated in U.S. dollars and/or (ii)
calculated in U.S. dollars for Letters of Credit denominated in non-
U.S. currency based on the Exchange Rate as of such date for such
non-U.S. currency; and, as to an Issuing Bank, the aggregate non-
contingent reimbursement or repayment obligations as of a
Reimbursement Date of the U.S. Borrower (together with the joint and
several non-contingent reimbursement or repayment obligations of the
Subsidiary of the U.S. Borrower for whose account the Letter of
Credit is issued, if applicable) with respect to amounts drawn under
Letters of Credit issued by such Issuing Bank calculated as of the
Reimbursement Date in the currency in which such Letters of Credit
were issued.
"Termination Date" means the Maturity Date or the earlier
date of termination in whole of the Commitments pursuant to
Section 2.06, 2.12, or 6.01, or such later date as shall be
determined under Section 8.10; provided in each case that if
such day shall not be a Business Day, the Termination Date shall
occur on the immediately preceding Business Day.
1.2. Section 1.01 is further amended to add the following
defined terms to such Section in proper alphabetical order:
"B Advance" means an advance by a Lender to the U.S. Borrower as
part of a B Borrowing resulting from the auction bidding procedure
described in Section 2.19.
"B Borrowing" means a borrowing consisting of B Advances made by
a Lender or Lenders whose offer to make one or more B Advances as
part of such borrowing has been accepted by the U.S. Borrower under
the auction bidding procedure described in Section 2.19.
"B Note" means a promissory note executed and delivered by the
U.S. Borrower and payable to the order of any Lender, in
substantially the form of Exhibit C-1 hereto, evidencing the
indebtedness of the U.S. Borrower to such Lender resulting from a B
Advance made by such Lender.
"B Reduction" has the meaning specified in Section 2.01.
"Extension Request" has the meaning specified in Section
8.10.
"Facility Fee" has the meaning specified in Section 2.05.
"Notice of B Borrowing" has the meaning specified in Section
2.19(a)(i).
"Performance Level" means any of Performance Level I,
Performance Level II, Performance Level III, Performance Level IV or
Performance Level V.
"Performance Level III" means that level of financial
performance of the U.S. Borrower, measured as of the end of a fiscal
quarter of the U.S. Borrower, at which all of the following tests
have been met:
(i) the Interest Coverage Ratio for the then most recently ended
four (4) fiscal quarter period of the U.S. Borrower is greater
than or equal to 3.9 to 1;
(ii) the Funded Debt to Capitalization Ratio for the then most
recently ended four (4) fiscal quarter period of the U.S.
Borrower is less than or equal to 0.41 to 1;
(iii) no Event of Default has occurred and is continuing
unwaived at the end of the initial fiscal quarter in which the
tests in clauses (i) and (ii) have been met; and
(iv) the conditions of Performance Level I and Performance
Level II are not satisfied as of such date.
"Performance Level IV means that level of financial performance
of the U.S. Borrower, measured as of the end of a fiscal quarter of
the U.S. Borrower, at which all of the following tests have been met:
(i) the Interest Coverage Ratio for the then most recently ended
four (4) fiscal quarter period of the U.S. Borrower is greater
than or equal to 3.25 to 1;
(ii) the Funded Debt to Capitalization Ratio for the then most
recently ended four (4) fiscal quarter period of the U.S.
Borrower is less than or equal to 0.47 to 1;
(iii) no Event of Default has occurred and is continuing
unwaived at the end of the initial fiscal quarter in which the
tests in clauses (i) and (ii) have been met; and
(iv) the conditions of Performance Level I, Performance Level II
and Performance Level III are not satisfied as of such date.
"Performance Level V means that level of financial performance
of the U.S. Borrower, measured as of the end of a fiscal quarter of
the U.S. Borrower, at which none of Performance Level I, Performance
Level II, Performance Level III or Performance Level IV shall have
been achieved.
1.3. Section 1.01 is further amended to delete clause (i) of
the defined term "Eligible Assignee" in its entirety and to substitute the
following therefor:
(i) any Lender (or any Affiliate of such Lender);
1.4. Section 1.01 is further amended to delete clause (iii) of
the defined term "Letter of Credit Obligations" in its entirety and to
substitute the following therefor:
(iii) the then aggregate face amount of all Letters of Credit
requested by the U.S. Borrower and the Multicurrency Borrowers
but not yet issued (unless the request for an unissued Letter of
Credit has been denied pursuant to Section 2.04(c)(i)).
1.5. Section 1.01 is further amended to add the following
sentence to the end of the defined term "Subsidiary":
With respect to the U.S. Borrower, "Subsidiary" shall include
each Multicurrency Borrower.
1.6. Section 1.01 is further amended to delete the defined term
"Unused Facility Fee" in its entirety.
1.7. Section 2.01 is amended (i) to add "(a)" to the beginning
of first sentence thereof, (ii) to delete the last sentence thereof in its
entirety and (iii) to add the following Sections 2.01(b) and (c) thereto:
(b) The aggregate amount of the Commitments of the Lenders
shall be deemed used from time to time to the extent of the aggregate
amount of the B Advances then outstanding and such deemed use of the
aggregate amount of the Commitments shall be applied to the Lenders
ratably according to their respective Pro Rata Shares (such deemed
use of the aggregate amount of the Commitments being a
"B Reduction").
(c) Within the limits of each Lender's Commitment and the
foregoing restrictions in this Section 2.01, the U.S. Borrower may
borrow, prepay pursuant to Section 2.12(a) and reborrow under this
Section 2.01.
1.8. Section 2.04(c)(i) is amended to add the phrase "or any
Multicurrency Borrower" after the term "U.S. Borrower" contained in the
first sentence thereof.
1.9. Section 2.04(c)(i) is further amended (i) to delete "and"
from the end of clause (1)(g) thereof; (ii) to delete the period from the
end of clause (2)(e) thereof and to substitute a semicolon therefor, and
(iii) to add the following clause (3) thereto:
and (3) with respect to each such notice delivered by a Multicurrency
Borrower with respect to Letters of Credit to be issued, amended or
extended, as applicable, such notice shall be accompanied by a
certificate from the U.S. Borrower (X) certifying that all conditions
precedent to such issuance, amendment or extension, as applicable,
have been satisfied, (Y) confirming the accuracy of the information
specified in such notice and (Z) confirming that the U.S. Borrower is
(i) jointly and severally applying for such Letters of Credit and
(ii) jointly and severally liable for all Reimbursement Obligations,
Letter of Credit Fees and all other Issuing Bank charges in the
nature of those described in Section 2.04(g) hereof with respect to
such Letters of Credit.
1.10. Section 2.05(a) is amended to delete such Section in its
entirety and to substitute the following therefor:
(a) Facility Fee. The U.S. Borrower agrees to pay to the Agent
for the account of each Lender a facility fee ("Facility Fee") at the
respective rate per annum set forth below on such Lender's Pro Rata
Share of the aggregate average daily Commitments of all Lenders
(whether used or unused, and without regard to any B Reduction that
may then exist) from December 21, 1994 until the Termination Date.
The Facility Fee shall be payable monthly, in arrears, on the first
day of each calendar month, commencing on January 1, 1995, and on the
Termination Date. The Facility Fee in respect of any period shall be
determined on the basis of the Performance Level which is applicable
during such period, in accordance with the table set forth below.
The rate per annum at which such Facility Fee is calculated shall
change when and as the existing Performance Level changes.
Performance Level Facility Fee
(Rate per annum)
Performance Level I 0.1250%
Performance Level II 0.1750%
Performance Level III 0.2000%
Performance Level IV 0.2250%
Performance Level V 0.3250%
1.11. Section 2.05 is further amended to add the following
clause (f) thereto:
(f) Auction Fee. The U.S. Borrower agrees to pay to the Agent,
for the account of the Agent, on the date of issuance of each Notice
of B Borrowing, an auction fee in the amount of $2,000. Such fee
shall be fully earned upon issuance of such Notice of B Borrowing and
shall be nonrefundable without regard to whether or not any B
Advances are thereafter made in response to the solicitation of bids
made in such Notice of B Borrowing.
1.12. Section 2.07 is amended to delete the second sentence of
such Section in its entirety and to substitute the following therefor:
The U.S. Borrower shall repay the principal amount of each B
Advance made to it by a Lender to such Lender in accordance with
the B Notes payable to the order of such Lender. To the extent
the sum, at any time, of the outstanding Advances, plus the
outstanding B Advances, plus Letter of Credit Obligations, plus
the Multicurrency Reserve then in effect, exceeds the aggregate
Commitments then in effect, the U.S. Borrower shall, without
notice or demand of any kind, immediately make a payment to the
Agent for the benefit of the Lenders in such amount as is
required to eliminate such excess for application first on the
outstanding Advances, if any, until paid in full, second as cash
collateral for the Letter of Credit Obligations, if Letters of
Credit are then outstanding until the amount of cash collateral
equals the then outstanding face amount of such Letters of
Credit, and finally on the outstanding B Advances, if any, until
paid in full.
1.13. Section 2.12(b) is amended to delete clause (v) such
Section in its entirety and to substitute the following therefor:
(v) then, apply such amount to the outstanding B Advances,
together with accrued interest to the date of such prepayment on the
amount prepaid until repaid in full, and the Commitments shall
thereupon be permanently reduced by the amount of such prepayment
applied to the outstanding B Advances and the Commitment of each
Lender shall be reduced proportionately in accordance with its Pro
Rata Share, and
(vi) last, refund any remaining balance of such Net Cash
Proceeds to the U.S. Borrower.
1.14. Section 2.15(a) is amended (i) to delete the comma after
the second reference to the term "Advances" in the first sentence thereof
and to substitute the phrase "and B Advances" therefor, and (ii) to add
the phrase ", B Advances" after each reference to the term "Advances"
contained in such Section other than the second reference to such term as
described in clause (i) above.
1.15. Section 2.15(b)(i) is amended to delete such Section in
its entirety and to substitute the following therefor:
(i) [Intentionally Omitted.]
1.16. Section 2.15(b)(ii) is amended to add the phrase ", under
the B Notes" immediately after the phrase "the U.S. Borrower hereunder"
contained in the second sentence of such Section.
1.17. Section 2.15(c) is amended to delete each reference to
the term "Unused Facility Fees" contained in such Section and to
substitute the term "Facility Fees" for each such reference.
1.18. Section 2.15(d) is amended to delete such Section in its
entirety and to substitute the following therefor:
(d) Whenever any payment hereunder, under the Notes or under
the B Notes shall be stated to be due on a day other than a Business
Day, such payment shall be made on the immediately succeeding
Business Day, and such extension of time shall in such cases be
included in the computation of interest or Facility Fees due on such
Business Day, as the case may be; provided, however, if such
extension would cause payment of interest on or principal of
Eurocurrency Advances to be made in the immediately succeeding
calendar month, such payment shall be made on the immediately
preceding Business Day.
1.19. Section 2.15(e) is amended to delete clause (i) contained
in the second sentence of such Section in its entirety and to substitute
the following therefor:
(i) with respect to Advances and B Advances, as applicable, at
the Federal Funds Rate and
1.20. The Credit Agreement is further amended to add the
following Sections thereto:
SECTION 2.19. The B Advances. (a) Each Lender severally
agrees that the U.S. Borrower may make B Borrowings in U.S. dollars
under this Section 2.19 from time to time on any Business Day during
the period from December 21, 1994 until the date occurring 30 days
prior to the Termination Date in the manner set forth below; provided
that, following the making of each B Borrowing, the sum of (i)
aggregate amount of all Advances then outstanding, (ii) the aggregate
amount of all B Advances then outstanding, (iii) the Multicurrency
Reserve then in effect and (iv) the Letter of Credit Obligations then
outstanding shall not exceed the aggregate amount of the Commitments
of the Lenders (computed without regard to any B Reduction) then in
effect.
(i) The U.S. Borrower may request a B Borrowing under this
Section 2.19 by delivering to the Agent, by telecopier, telex or
cable, confirmed immediately in writing, a notice of a B Borrow-
ing in substantially the form of Exhibit D-1 hereto, (a "Notice
of B Borrowing"), specifying (a) the date and aggregate amount
of the proposed B Borrowing, (b) the maturity date for repayment
of each B Advance to be made as part of such B Borrowing (which
maturity date shall be a Business Day and shall not be earlier
than the date occurring 30 days after the date of such B
Borrowing or later than the Termination Date), (c) the interest
payment date or dates relating thereto, and (d) any other terms
to be applicable to such B Borrowing, not later than 10:30 A.M.
(New York City time) (A) at least one Business Day prior to the
date of the proposed B Borrowing, if the U.S. Borrower shall
specify in the Notice of B Borrowing that the rates of interest
to be offered by the Lenders shall be fixed rates per annum and
(B) at least four (4) Business Days prior to the date of the
proposed B Borrowing, if the U.S. Borrower shall specify in the
Notice of B Borrowing the basis to be used by the Lenders in
determining the rates of interest to be offered by them. The
Agent shall in turn promptly notify each Lender of each request
for a B Borrowing received by it from the U.S. Borrower by
delivering to such Lender by telecopier a copy of the related
Notice of B Borrowing.
(ii) Each Lender may, if, in its sole discretion, it so
elects, irrevocably offer to make one or more B Advances to the
U.S. Borrower as part of such proposed B Borrowing at a rate or
rates of interest specified by such Lender, in its sole
discretion, by notifying the Agent in writing (which shall give
prompt notice thereof to the U.S. Borrower), before 10:00 A.M.
(New York City time) (A) on the date of such proposed B Borrow-
ing, in the case of a Notice of B Borrowing delivered pursuant
to clause (A) of clause (i) above and (B) three (3) Business
Days before the date of such proposed B Borrowing, in the case
of a Notice of B Borrowing delivered pursuant to clause (B) of
clause (i) above, of the minimum amount and maximum amount of
each B Advance which such Lender would be willing to make as
part of such proposed B Borrowing (which amounts may, subject to
the proviso to the first sentence of this Section 2.19(a),
exceed such Lender's Commitment), the rate or rates of interest
therefor and such Lender's Applicable Lending Office with
respect to such B Advance; provided that if the Agent in its
capacity as a Lender shall, in its sole discretion, elect to
make any such offer, it shall notify the U.S. Borrower of such
offer before 9:00 A.M. (New York City time) on the date on which
notice of such election is to be given to the Agent by the other
Lenders. If any Lender shall elect not to make such an offer,
such Lender shall so notify the Agent, before 10:00 A.M. (New
York City time) on the date on which notice of such election is
to be given to the Agent by the other Lenders, and such Lender
shall not be obligated to, and shall not, make any B Advance as
part of such B Borrowing; provided that the failure by any
Lender to give such notice shall not cause such Lender to be
obligated to make any B Advance as part of such proposed B
Borrowing, nor shall such failure result an any liability of
such Lender to the Agent.
(iii) The U.S. Borrower shall, (A) before 11:00 A.M. (New
York City time) on the date of such proposed B Borrowing, in the
case of a Notice of B Borrowing delivered pursuant to clause (A)
of clause (i) above and (B) before 1:00 P.M. (New York City
time) three (3) Business Days before the date of such proposed
B Borrowing, in the case of a Notice of B Borrowing delivered
pursuant to clause (B) of clause (i) above, either:
(x) cancel its request for such B Borrowing by giving
the Agent written notice to that effect, or
(y) accept one or more of the offers made by any
Lender or Lenders pursuant to clause (ii) above, in the
sole discretion of the U.S. Borrower, by giving written
notice to the Agent of the amount of each B Advance (which
amount shall be equal to or greater than the minimum
amount, and equal to or less than the maximum amount,
notified to the U.S. Borrower by the Agent on behalf of
such Lender for such B Advance pursuant to clause (ii)
above) to be made by each Lender as part of such B
Borrowing, and reject any remaining offers made by Lenders
pursuant to clause (ii) above by giving the Agent written
notice to that effect. The U.S. Borrower shall accept
offers on the basis of the respective rates quoted,
selecting first the lowest such rate and accepting offers
thereafter in ascending order of such rates.
(iv) If the U.S. Borrower notifies the Agent that such B
Borrowing is cancelled pursuant to clause (iii)(x) above, the
Agent shall give prompt written notice thereof to the Lenders
and such B Advance shall not be made.
(v) If the U.S. Borrower accepts one or more of the offers
made by any Lender or Lenders pursuant to clause (iii)(y) above,
the Agent shall thereupon promptly notify (A) each Lender that
has made an offer as described in clause (ii) above, of the date
and aggregate amount of such B Borrowing and whether or not any
offer or offers made by such Lender pursuant to clause (ii)
above have been accepted by the U.S. Borrower, (B) each Lender
that is to make a B Advance as part of such B Borrowing, of the
amount of each B Advance to be made by such Lender as part of
such B Borrowing, and (C) each Lender that is to make a B
Advance as part of such B Borrowing, upon receipt, that the
Agent has received forms of documents appearing to fulfill the
applicable conditions set forth in Article III. Each Lender
that is to make a B Advance as part of such B Borrowing shall,
before 12:00 noon (New York City time) on the date of such B
Borrowing specified in the notice received from the Agent
pursuant to clause (A) of the preceding sentence or any later
time when such Lender shall have received notice from the Agent
pursuant to clause (C) of the preceding sentence, make available
for the account of its Applicable Lending Office to the Agent at
the Payment Office such Lender's B Advance, in same day funds.
Upon fulfillment of the applicable conditions set forth in
Article III and after receipt by the Agent of such funds, the
Agent will make such funds available to the U.S. Borrower at the
Payment Office. Promptly after each B Advance, the Agent will
notify each Lender of the amount of the B Borrowing, the
consequent B Reduction and the dates upon which such B Reduction
commenced and will terminate.
(b) Each B Borrowing shall be in an aggregate amount not less
than $20,000,000 or an integral multiple of $1,000,000 in excess
thereof and, following the making of each B Borrowing, the U.S.
Borrower shall be in compliance with the limitation set forth in the
proviso to the first sentence of Section 2.19(a) above.
(c) Within the limits and on the conditions set forth in this
Section 2.19, the U.S. Borrower may from time to time borrow under
this Section 2.19, repay or prepay pursuant to Section 2.19(d) below,
and reborrow under this Section 2.19; provided that a B Borrowing
shall not be made within three (3) Business Days before or after the
date of any other B Borrowing.
(d) The U.S. Borrower shall repay to the Agent for the account
of each Lender which has made a B Advance, or each other holder of a
B Note, on the maturity date of each B Advance (such maturity date
being that specified by the U.S. Borrower for repayment of such B
Advance in the related Notice of B Borrowing delivered pursuant to
Section 2.19(a)(i) above and provided in the B Note evidencing such B
Advance), the then unpaid principal amount of such B Advance. The
U.S. Borrower shall have no right to prepay any B Advance unless, and
then only on the terms specified by the U.S. Borrower for such B
Advance in the related Notice of B Borrowing delivered pursuant to
Section 2.19(a)(i) above and set forth in the B Note evidencing such
B Advance.
(e) The U.S. Borrower shall pay interest on the unpaid
principal amount of each B Advance from the date such B Advance is
made to the date such B Advance is repaid in full, at the rate of
interest for such B Advance specified by the Lender making such B
Advance in its notice with respect thereto delivered pursuant to
Section 2.19(a)(ii) above, on the interest payment date or dates
specified by the U.S. Borrower for such B Advance in the related
Notice of B Borrowing delivered pursuant to Section 2.19(a)(i) above,
as provided in the B Note evidencing such B Advance.
(f) The indebtedness of the U.S. Borrower resulting from each B
Advance made to the U.S. Borrower shall be evidenced by a separate B
Note of the U.S. Borrower payable to the order of the Lender making
such B Advance.
SECTION 3.04. Conditions Precedent to Each B Borrowing. The
obligation of each Lender which is to make a B Advance (including the
initial B Advance) to make such B Advance at any time is subject to
the conditions precedent that (i) the Agent shall have received the
Notice of B Borrowing with respect thereto, (ii) on or before the
date of such B Borrowing, but prior to such B Borrowing, the Agent
shall have received a B Note payable to the order of such Lender for
each of the one or more B Advances to be made by such Lender as part
of such B Borrowing, in a principal amount equal to the principal
amount of the B Advance to be evidenced thereby and otherwise on such
terms as were agreed to for such B Advance in accordance with Section
2.19, and (iii) on the date of such B Borrowing the following
statements shall be true (and each of the giving of the applicable
Notice of B Borrowing and the acceptance by the U.S. Borrower of the
proceeds of such B Borrowing shall constitute a representation and
warranty by the U.S. Borrower that on the date of such B Borrowing
such statements are true):
(a) The representations and warranties contained in
Section 4.01 are correct on and as of the date of such B
Borrowing, before and after giving effect to such B Borrowing
and to the application of the proceeds therefrom, as though made
on and as of such date,
(b) No event has occurred and is continuing, or would
result from such B Borrowing or from the application of the
proceeds therefrom, which constitutes an Event of Default or
which would constitute an Event of Default but for the
requirement that notice be given or time elapse or both, and
(c) No event has occurred and no circumstance exists which
has or is reasonably likely to have a Material Adverse Effect.
SECTION 8.10. Extensions of the Commitments. (a) The U.S.
Borrower may, by written notice (an "Extension Request") given to the
Agent not less than 60 days (and not earlier than 90 days) prior to
each of December 21, 1995 and December 21, 1996, request that the
Termination Date then in effect be extended for a one-year period
beyond such date. The Agent shall promptly advise each Lender of its
receipt of any Extension Request. Each Lender may, in its sole
discretion, consent to a requested extension by giving written notice
thereof to the Agent and the U.S. Borrower by not later than the
Business Day (the "Acceptance Deadline Date") 30 days prior to
December 21, 1995 or December 21, 1996, as applicable. Failure on
the part of any Lender to respond to an Extension Request shall be
deemed to be a denial of such request by such Lender. If all of the
Lenders as of the date of any given Extension Request shall consent
in writing to the requested extension, such request shall be granted.
The Agent shall promptly (and in any event by no later than the close
of business on the applicable Acceptance Deadline Date) notify the
U.S. Borrower in writing as to whether the requested extension has
been granted (such written notice being an "Extension Confirmation
Notice"), and shall promptly thereafter provide a copy of such
Extension Confirmation Notice to each Lender. Each permitted
extension shall become effective on the then immediately succeeding
anniversary date of December 21, 1994. Each Extension Confirmation
Notice shall specify therein the new Termination Date.
(b) The failure of the U.S. Borrower to issue an Extension
Request prior to December 21, 1995 shall not operate as a waiver of
the U.S. Borrower's right to issue an Extension Request prior to
December 21, 1996; provided, that no extension granted under this
Section 8.10 at any one time shall exceed a period of 365 days.
1.21. Section 4.01(g) is amended to add the phrase ", B
Advance" after the term "Advance" contained in such Section.
1.22. Section 7.01 is amended to add the phrase ", B Advances"
after the term "Advances" contained in such Section.
1.23. Section 7.02 is amended to add the phrase ", B Advances"
after the term "Advances" contained in such Section.
1.24. Section 7.03 is amended (i) to add the phrase ", B
Advances" after the term "Advances" contained in such Section and (ii) to
add "or B Note" after the term "Note" contained in such Section.
1.25. Section 7.03 is amended to add the following after each
reference to the term "Pro Rata Share" contained therein:
(or, in the event that the Commitments have been terminated
pursuant to the terms of this Agreement, each Lender's ratable
portion of the aggregate outstanding principal balance of all
Advances, B Advances, Multicurrency Advances and Letter of
Credit Obligations)
1.26. Section 8.02 is amended to delete clause (iii) thereof in
its entirety and to substitute the following therefor:
(iii) if to the Agent, c/o Citicorp North America, Inc., 200
South Wacker Drive, Chicago, Illinois 60606, Attention: Richard
Michael, Telecopier No.: (312) 993-1050, Telephone No.: (312)
993-3130;
1.27. Section 8.07(a) is amended to add the phrase "(other than
in respect of any B Notes or B Advances then held by such Lender)" after
the term "Agreement" in the eighth line of such Section.
1.28. The Credit Agreement is further amended to delete the
amounts set forth under the caption "Commitment" opposite the name of each
Lender on the signature pages of the Credit Agreement in their entirety
and to substitute therefor the amounts set forth below opposite the name
of each Lender:
Commitment
$34,000,000 CITIBANK, N.A.
$23,500,000 FIRSTAR BANK MILWAUKEE, N.A.
$23,500,000 THE BANK OF NOVA SCOTIA
$23,500,000 NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
$23,500,000 COMMERZBANK AKTIENGESELLSCHAFT
GRAND CAYMAN BRANCH
$23,500,000 FIRST BANK NATIONAL
ASSOCIATION
$23,500,000 THE NORTHERN TRUST COMPANY
1.29. The Credit Agreement is further amended to delete the
amount set forth opposite the caption "Total Commitments" on the last
signature page of the Credit Agreement in its entirety and to substitute
therefor $175,000,000.
1.30. Exhibit C-1 and Exhibit D-1 attached hereto are hereby
added to the Credit Agreement.
SECTION 2. Successor Agents. Pursuant to Section 7.06 of the
Credit Agreement, the Retiring Agent and the Retiring London Agent each
hereby gives notice to the Lenders, the Issuing Banks and the U.S.
Borrower of its resignation as the "Agent" and "London Agent," as the case
may be, under the Credit Agreement effective as of the effective date of
this Amendment. Effective as of the effective date of this Amendment,
each Lender and each Issuing Bank hereby appoints Citibank as the "Agent"
and Citibank International plc as the "London Agent" under the Credit
Agreement and authorizes the Agent and the London Agent, as applicable, to
take such action as agent on its behalf and to exercise such powers under
the Credit Agreement as are delegated to the Agent or London Agent, as the
case may be, by the terms hereof, together with such powers as are
reasonably incidental thereto.
SECTION 3. Conditions Precedent. This Amendment shall become
effective and shall be deemed effective as of date first above written
upon the satisfaction of the following conditions precedent on or before
December 21, 1994: (a) no event has occurred and is continuing which
constitutes an Event of Default or would constitute an Event of Default
but for the requirement that notice be given or time elapse or both; (b)
the Agent shall have received ten (10) copies of this Amendment duly
executed by the U.S. Borrower, the Multicurrency Borrowers, each of the
Lenders and Issuing Banks, the Agent and the London Agent; and (c) the
U.S. Borrower shall have paid to Citicorp Securities, Inc. ("CSI") an
arrangement fee pursuant to the terms of that certain Fee Letter between
the U.S. Borrower and CSI.
SECTION 4. Representations and Warranty of the U.S. Borrower
and the Multicurrency Borrowers.
4.1 Each of the U.S. Borrower and the Multicurrency Borrowers
hereby represents and warrants that this Amendment constitutes a legal,
valid and binding obligation of such Person enforceable against it in
accordance with its terms.
4.2 Upon the effectiveness of this Amendment, the U.S. Borrower
reaffirms all covenants, representations and warranties made in the Credit
Agreement to the extent the same are not amended hereby and agrees that
all such covenants, representations and warranties shall be deemed to have
been remade as of the effective date of this Amendment.
SECTION 5. Reference to and Effect on the Credit Agreement.
5.1. Upon the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein", or words of like import shall mean and be a reference to the
Credit Agreement as amended hereby, and each reference to the Credit
Agreement in any other document, instrument or agreement executed and/or
delivered in reference to the Credit Agreement as amended hereby.
5.2. Except as specifically amended hereby, the Credit
Agreement and other documents, instruments and agreements executed and/or
delivered in connection therewith shall remain in full force and effect
and are hereby ratified and confirmed.
5.3. The execution, delivery and effectiveness of this
Amendment shall not (a) operate as a waiver of any right, power or remedy
of the Agent, the London Agent, any Lender or any Issuing Bank under the
Credit Agreement or any other document, instrument or agreement executed
in connection therewith, (b) constitute a waiver of any provision
contained therein, nor (c) be deemed to be a consent to any other or
further actions or occurrences, except as specifically set forth herein.
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Paragraph Headings. The paragraph headings
contained in this Amendment are and shall be without substance, meaning or
content of any kind whatsoever and are not a part of the agreement between
the parties hereto.
SECTION 8. Condition Subsequent. On or prior to February 28,
1995 the Agent shall have received a certificate of the respective
Secretaries of the U.S. Borrower and each Multicurrency Borrower
certifying (i) the names and signatures of the officers of such Person
authorized to sign the Amendment, and (ii) that attached thereto is a true
and complete copy of the resolutions of such Person's Board of Directors
approving and authorizing the execution, delivery and performance of the
Amendment. The parties hereto agree that if the Agent shall not have
received the certificates referred to in the immediately preceding
sentence on or prior to February 28, 1995, such failure shall be an Event
of Default described in Section 6.01(b) of the Credit Agreement, entitling
the Agent, the Lenders and the Issuing Banks to all of the rights and
remedies set forth in Section 6.01 of the Credit Agreement.
SECTION 9. Counterparts. This Amendment may be executed in one
or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
GIDDINGS & LEWIS, INC.
By /s/ Douglas E. Barnett
-------------------------
Title: Treasurer
GIDDINGS & LEWIS GmbH
By /s/ Douglas E. Barnett
-------------------------
Title: Treasurer
GIDDINGS & LEWIS, LTD.
By /s/ Douglas E. Barnett
-------------------------
Title: Treasurer
CITICORP NORTH AMERICA, INC.,
as Retiring Agent
By /s/ Jeff Kline
--------------------------
Vice President
CITIBANK, N.A., as Agent
By /s/ Barbara A. Cohen
--------------------------
Vice President
CITICORP INVESTMENT BANK LIMITED, as
Retiring London Agent
By /s/
---------------------------
Vice President
CITIBANK INTERNATIONAL PLC, as London
Agent
By /s/
---------------------------
Vice President
CITIBANK, N.A., LONDON, as an Issuing
Bank
By /s/ David F. Collins
----------------------------
Title: Vice President
CITIBANK, N.A., as a Lender and Issuing
Bank
By /s/ Barbara A. Cohen
----------------------------
Title: Vice President
FIRSTAR BANK MILWAUKEE, N.A., as a
Lender and Issuing Bank
By /s/ Robert Flosbach
---------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA, as a Lender
By /s/ F. C. H. Ashby
----------------------------
Title: Senior Manager of Loan
Operations
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as a Lender and Issuing
Bank
By /s/ Phil Neary
----------------------------
Title: Vice President
COMMERZBANK AKTIENGESELLSCHAFT GRAND
CAYMAN BRANCH, as a Lender and Issuing
Bank
By /s/ Wiliam Brent Peterson
-----------------------------
Title: Assistant Treasurer
By /s/ Dr. Helmut Tonner
------------------------------
Title: Executive Vice President
FIRST BANK NATIONAL ASSOCIATION, as a
Lender and Issuing Bank
By /s/ Marri B. Bernhardson
------------------------------
Title: Vice President
THE NORTHERN TRUST COMPANY, as a Lender
By /s/ Julie J. Wigdale
------------------------------
Title: Vice President
<PAGE>
EXHIBIT C-1
to
Credit Agreement dated as of December 21, 1992
FORM OF B NOTE
(Attached.)
<PAGE>
[Amount] Dated: ____________, 19__
FOR VALUE RECEIVED, the undersigned, GIDDINGS & LEWIS, INC., a
Wisconsin corporation (the "U.S. Borrower"), HEREBY PROMISES TO PAY to the
order of _____________________________ (the "Lender") for the account of
its Applicable Lending Office (as defined in the Credit Agreement referred
to below), on __________, 19__, the principal amount of ______________
Dollars (______________). Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the
Credit Agreement referred to below.
The U.S. Borrower promises to pay interest on the unpaid
principal amount hereof from the date hereof until such principal amount
is paid in full, at the interest rate and payable on the interest payment
date or dates provided below:
Interest Rate: ____% per annum (calculated on the basis of a year of
____ days for the actual number of days elapsed).
Interest Payment Date or Dates: _________________________
Both principal and interest are payable in lawful money of the
United States of America to the Agent (as defined below) for the account
of the Lender at the office of Citibank, N.A. at 399 Park Avenue, New
York, New York 10043 in same day funds and, subject to the terms of the
Credit Agreement, free and clear of and without any deduction, with
respect to the payee named above, for any and all present and future
taxes, deductions, charges or withholdings, and all liabilities with
respect thereto.
This Promissory Note is one of the B Notes referred to in, and
is entitled to the benefits of, the Credit Agreement dated as of December
21, 1992 (as the same has been and hereafter may be amended, restated,
supplemented or otherwise modified from time to time, the "Credit
Agreement") among the U.S. Borrower, the Multicurrency Borrowers, the
Lender and certain other lenders parties thereto, the Issuing Banks,
Citibank, N.A. as agent (the "Agent") for the Lender, such other lenders
and the Issuing Banks, and Citibank Investment Bank Limited, as London
Agent for the Lender and such other lenders. The Credit Agreement, among
other things, contains provisions for acceleration of the maturity hereof
upon the happening of certain stated events.
The U.S. Borrower hereby waives presentment, demand, protest and
notice of any kind. No failure to exercise, and no delay in exercising,
any rights hereunder on the part of the holder hereof shall operate as a
waiver of such rights.
This Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
GIDDINGS & LEWIS, INC.
By: _________________________
Title:
<PAGE>
EXHIBIT D-1
to
Credit Agreement dated as of December 21, 1992
FORM OF NOTICE OF B BORROWING
(Attached.)
<PAGE>
[Date]
Citibank, N.A., as Agent
399 Park Avenue
New York, New York 10043
Attention: ___________________
Citicorp North America, Inc.
200 South Wacker Drive
Chicago, Illinois 60606
Attention: Mark Stohlquist
Gentlemen:
The undersigned, Giddings & Lewis, Inc. (the "U.S. Borrower"),
refers to the Credit Agreement, dated as of December 21, 1992 (as the same
may be amended, supplemented or otherwise modified from time to time, the
"Credit Agreement", the terms defined therein being used herein as therein
defined), among the U.S. Borrower, the "Multicurrency Borrowers", the
"Lenders" party thereto from time to time, the "Issuing Banks" party
thereto from time to time Citibank, N.A. ("Citibank"), as agent for the
Lenders and Issuing Banks (the "Agent"), and Citicorp Investment Bank
Limited, as an agent for the Lenders (the "London Agent"). The U.S.
Borrower hereby gives you notice pursuant to Section 2.19(a)(i) of the
Credit Agreement that the undersigned hereby requests a B Borrowing under
the Credit Agreement, and in that connection sets forth the terms on which
such B Borrowing (the "Proposed B Borrowing") is requested to be made:
(A) Date of B Borrowing:____________________________
(B) Amount of B Borrowing: _________________________
(C) Maturity Date: _________________________________
(D) Interest Rate Basis: ___________________________
(E) Interest Payment Date(s): ______________________
(F) _____________________ ______________________
(G) _____________________ ______________________
The U.S. Borrower hereby certifies that the following statements
are true on the date hereof, and will be true on the date of the Proposed
B Borrowing:
(a) the representations and warranties contained in
Section 4.01 of the Credit Agreement are correct in all material
respects, before and after giving effect to the Proposed B
Borrowing and to the application of the proceeds therefrom, as
though made on and as of such date;
(b) no event has occurred and is continuing, or would
result from the Proposed B Borrowing or from the application of
the proceeds therefrom, which constitutes an Event of Default or
would constitute an Event of Default but for the requirement
that notice be given or time elapse or both;
(c) the aggregate amount of the Proposed B Borrowing and
all other Borrowings and B Borrowings to be made on the same day
under the Credit Agreement is equal to or less than the
aggregate amount of the unused Commitments of the Banks;
The U.S. Borrower hereby confirms that the Proposed B Borrowing
is to be made available to it in accordance with Section 2.19(a) of the
Credit Agreement.
Very truly yours,
GIDDINGS & LEWIS, INC.
By: _________________________
Title:
EMPLOYMENT AGREEMENT
between Giddings & Lewis, GmbH, a company fully owned by Giddings & Lewis,
Inc. with place of business in Wendlingen a.n., (hereinafter referred to
as the "Company") and Mr. Heinz-Gerhard Anders (hereinafter referred to as
"Mr. Anders").
1. Position and Scope of Duties
a. The Company shall employ Mr. Anders as Managing Director
(Geschaftsfuhrer). In such capacity, Mr Anders will be
responsible for the European Operations of the Company,
including operations in Wendlingen, Germany; Knowsley, U.K.; and
Arbroath, Scotland.
It will be recommended at the February 1994, Board of Directors
meeting that Mr. Anders be named an officer of Giddings & Lewis.
b. Mr. Anders shall perform his duties as Managing Director by
observing the diligence of a prudent businessman in accordance
with the provisions of this Employment Agreement, the Company's
Articles of Association, the general and specific directives or
instructions given by the quotaholders and the chairman of the
board and in accordance with the law.
c. The quotaholders may, at any time, appoint additional Managing
Directors and/or assign different and/or additional
responsibilities to Mr. Anders. The appointment of additional
managing directors notwithstanding, Mr. Anders will represent
the Company alone.
d. The following actions shall require the prior written consent of
the shareholders:
1. Selling of this enterprise as such, selling of parts of
this enterprise, as well as, entering into contracts
concerning the reorganization, merger or transformation of
the Company;
2. Acquisition, transfer and mortgaging of land, interests in
land and similar rights, as well as, all contracts
stipulating obligations regarding such transactions;
3. Formation, transfer and liquidation of divisions, formation
of companies, acquisition, expansion and termination of
interests in enterprises and the formation and termination
of silent partnerships;
4. Taking of liabilities and granting of credits exceeding DM
50,000 (or such other amount as determined by the
shareholders' meeting) per single case, excepting as far as
day-to-day business is concerned;
5. Appointment and dismissal of proxies (Prokuristen);
6. Entering into, termination and alteration of employment
contracts with employees whose salaries exceed DM 150,000
per calendar year (or such other amount determined by the
shareholders' meeting) or who shall participate in the
Company or its profit on the basis of its profit or its
turnover or otherwise;
7. Warranting of pensions of all kind;
8. Entering into, cancellation and alteration of lease
contracts, exceeding a monthly amount of DM 5,000;
9. Entering into liabilities upon bills, excepting the
endorsement of customers' bills, taking of warranties and
other securities for third persons;
10. Acquisition and selling of securities of all kind;
11. Loans and advances to employees of the Company not
exceeding the amount as determined by the quotaholders from
time to time.
12. Entering into, concluding or cancellation of license
agreements whatsoever;
13. All other activities which are, with respect to their
bearing and significance, of specific importance for the
Company or which do not belong to the Company's usual
business transactions.
e. Mr. Anders shall devote his full working time and ability to the
Company's business. Any other activity which normally entitles
to remuneration, including any part-time work, is subject to the
explicit prior written consent of the quotaholders. The
quotaholders may refuse to grant such consent without giving
reasons therefore.
f. If Mr. Anders makes an invention in his capacity with the
Company, any rights to use this invention will be transferred to
the Company without any payments to the inventor.
2. Salary and Allowable Expenses
a. Mr. Anders will be paid an annual base salary of DM 350,000.
Mr. Anders will participate in the Management Incentive
Compensation Plan. For 1994, Mr Anders will participate at a
target level of 40% of his base salary with any incentive award
paid based on attainment of set objectives for his operations.
At a minimum for 1994, he will be paid 20% of his base salary
(DM 70,000) which will be paid in March of 1995.
The base compensation will be paid in 12 installments p.a. at
the end of each calendar month. Any incentive earned will be
paid in March of the following year.
b. Travel expenses and other necessary expenses incurred by Mr.
Anders, in the furtherance of the Company's business shall be
reimbursed against proof and in accordance with the principles
applicable in Germany for tax purposes.
c. The Company shall furnish Mr. Anders with a company car (model:
MB 320E) for business and personal use. The value of the
personal use per month as determined by the German tax
regulations for the particular type of car shall constitute
additional compensation to Mr. Anders which will be subject to
wage tax withholding.
In case of suspension under clause 3 a. Mr. Anders shall at the
request of the Company immediately return the company car
together with the keys to the company's place of business.
d. To the extent Mr. Anders is subject to social security
contributions (old age, unemployment, health) the Company will
pay half of the legal contributions, as defined under German law
from time to time.
3. Terms of Employment and Notice
a. This Agreement is entered into until May 31, 1998. The
Agreement may be terminated at or after May 31, 1998, but only
at the end of a calendar month by giving 3 months notice. In
case of termination, the Company is entitled to release Mr
Anders from his obligation to work during the period of notice
while continuing to pay him his salary.
b. Extraordinary notice of termination, effective immediately, may
be given for cause as defined under German labour law.
c. Notice of termination by Mr. Anders must be given in writing to
the Chairman of Giddings & Lewis, Inc.
4. Vacation
Mr. Anders shall be entitled to an annual vacation of 30 work days
excluding Saturdays. The timing of vacation shall be determined in
agreement with the quotaholders, thereby taking into consideration
the personal wishes of Mr. Anders and the interests of the Company.
5. Sickness, Death
a. In case Mr. Anders is temporarily unable to perform his duties
as Managing Director due to sickness, the Company shall continue
to pay the base salary set forth in Section 2 a. hereof for a
period of 6 months.
b. In case of death during the term of this Agreement, the Company
shall pay Mr. Anders base salary set forth in Sec. 2 a. hereof
for a period of 3 months to his widow (and/or heirs as joint
creditors provided that the heirs are not older than 25 and will
not have terminated their professional education).
6. Disability Protection
The Company will enter into an accident insurance to the benefit of
Mr. Anders calling for the following payments:
According to current policy with: Helvetia Versicherungen,
dated 3/3/93, No.
130.080.05630942 for H. G.
Anders.
7. Fringe Benefits
Mr. Anders will be entitled to the Company's fringe benefits normally
extended to executives of the Company.
8. Secrecy
Mr. Anders shall not disclose to any third party or use for his
personal gain any confidential technical or other business
information which has been entrusted to him, or which has otherwise
become known to him and which relates to the Company or to any of its
related companies. In particular, no information may be disclosed
concerning the organization of the business, the relations with
customers and suppliers and the Company's know-how. This obligation
shall not expire upon termination of the employment but shall remain
in force.
Business records of any kind, including private notes concerning
Company affairs and activities, shall be carefully kept and shall be
used only for business purposes. It is not permitted to make copies
or extracts or duplicates of drawings, calculations, statistics and
the like and of any other business records for purposes other than
for the Company's business.
Upon termination of this employment, Mr. Anders shall return of his
own accord all business records and copies thereof which are in his
possession. Mr. Anders shall have no right of retention.
9. Undertaking Not to Compete
Mr. Anders herewith agrees to refrain during a period of two years
after termination of this Agreement from developing, producing and/or
distribution products as shown on the exhibit or rendering any
services in connection with these products (prohibited activities).
Mr. Anders herewith agrees further to refrain from any prohibited
activity directly or indirectly, independently or dependently, paid
or without payment, in his own name or on behalf of third parties as
producer, distributor, agent, managing director or shareholder within
6 months.
10. Temporary Living
a. Mr. Anders will be provided normal and reasonable living
expenses for the first sixty (60) days of his employment with
the Company including traveling costs to and from Wendlingen.
The Company will reimburse Mr. Anders for the cost of a
reasonable rental property not to exceed six (6) months. In
addition Mr. Anders will be reimbursed for the estate agents fee
for finding a rental property but not to exceed a fee of two (2)
months rent.
11. Other Provisions
a. Any amendment or addition to this Employment Agreement shall be
made in writing and has to be approved by the shareholders in
order to be effective.
b. This Agreement represents the entire agreement and understanding
of the parties and supersedes any prior written or oral
agreement between the parties.
c. This Agreement is subject to German law.
d. The rights and benefits of the Company under this Agreement
shall be transferable, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by,
or against its successors and assigns. However, such transfer
shall not relieve the Company of any liability under the terms
of this Agreement.
e. The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed a waiver of any
subsequent breach thereof.
f. Should and individual clause of this Agreement be legally
invalid or become legally invalid, the legal validity of the
remaining Agreement shall not be affected thereby. In such
case, however, a provision which will come as close as possible
to the intended economic effect of the invalid provision, will
be agreed.
GIDDINGS & LEWIS, GmbH
January 12, 1994 /s/ Joseph R. Coppola
Place, date Mr. Joseph R. Coppola
Chairman and Chief Executive
Officer
January 12, 1994 /s/ Heinz Gerhard Anders
Place, date Mr. Heinz-Gerhard Anders
[Page 14 of the Annual Report]
<TABLE>
Five - Year Summary
<CAPTION>
At and for the years ended December 31
1994 (d) 1993 (d) (e) 1992 1991 (f) 1990
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA (a)
(b)
Net sales $619,471 $517,462 $622,934 $326,609 $242,962
Net income 47,880 43,706 35,532 22,002 19,723
Net income available
to common
shareholders 47,880 43,706 32,896 21,044 19,723
Net income per common
share 1.40 1.31 1.16 .95 .92
Cash dividends per
common share .12 .12 .11 .08 .08
Average number of
common shares
outstanding 34,284,095 33,415,429 28,343,827 22,175,462 21,322,788
BALANCE SHEET DATA
Total assets $687,226 $614,016 $627,485 $560,167 $181,573
Long-term debt - - 68,215 50,583 -
Shareholders' equity 485,298 436,010 325,924 272,195 134,503
Ratio of long-term
debt to long-term
capital (c) 0% 0% 17.3% 15.7% 0%
<FN>
(a) See Note 1, "Summary of Significant Accounting Policies," in the
Notes to Consolidated Financial Statements.
(b) All share and per share data have been restated to reflect the two-
for-one stock split effected in May 1992.
(c) Long-term capital consists of long-term debt and common shareholders'
equity.
(d) Reflects cash received on certain fully-reserved Russian contracts
(see Note 2 of Notes to Consolidated Financial Statements).
(e) Reflects the prospective adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
(f) On October 31, 1991, the Company acquired Cross & Trecker Corporation
(Cross & Trecker). The operations of Cross & Trecker have been
included in the Company's financial statements since the acquisition
date.
</TABLE>
<PAGE>
[Pages 15-19 of the Annual Report]
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Introduction
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and notes thereto included elsewhere
in this Annual Report. In reviewing the Company's financial statements and
management's discussion and analysis, the following matters should be
considered:
- The Company is organized into four major operating groups: Automation
Technology, Integrated Automation, Automation Measurement and Control
and European Operations. The Automation Technology group is responsible
for the manufacture of smart manufacturing systems, automated
standalone machine tools, tooling and fixtures, and remanufacturing.
The Integrated Automation group produces assembly automation products
and systems and flexible transfer lines. Programmable industrial
computers, servo systems, controls and measurement products are part of
the Automation Measurement and Control group. The European Operations
group offers the Company's complete product lines through its sales,
engineering, manufacturing and service facilities in England and
Germany.
- Most of the Company's products are sold pursuant to long-term
contracts. Profits on long-term contracts are recognized using the
percentage-of-completion method. Percentage-of-completion is measured
principally by the percentage of costs incurred to date versus the
estimated total costs for each contract. Revenues recognized on the
percentage-of-completion method, but not yet billed to customers, are
reflected in accounts receivable. The Company does not normally receive
the bulk of payments for products sold under long-term contracts until
the product is shipped.
Results of Operations
1994 Compared to 1993
The following tables set forth the Company's bookings by operating group
for the period indicated and consolidated backlog at period-end on a
quarterly basis for 1994 and 1993.
April 3 July 3 Oct. 2 Dec. 31
(In thousands)
1994:
Operating group:
Automation Technology $32,034 $31,724 $28,973 $40,116
Integrated Automation 117,610 113,870 94,705 91,226
European Operations 6,138 5,771 12,141 8,759
Automation Measurement
and Control 13,647 17,831 16,964 17,948
-------- -------- -------- --------
Consolidated bookings $169,429 $169,196 $152,783 $158,049
======== ======== ======== ========
Consolidated backlog $431,448 $460,370 $449,969 $422,172
======== ======== ======== ========
April 4 July 4 Oct. 3 Dec. 31
(In thousands)
1993:
Operating group:
Automation Technology $36,987 $31,716 $36,561 $39,857
Integrated Automation 26,612 59,723 39,837 79,270
European Operations 52,367 28,543 55,404 8,433
Automation Measurement
and Control 13,328 11,954 13,818 14,511
-------- -------- -------- --------
Consolidated bookings $129,294 $131,936 $145,620 $142,071
======== ======== ======== ========
Consolidated backlog $349,070 $342,605 $367,857 $382,694
======== ======== ======== ========
Bookings for 1994 of $649.5 million represented an 18.3% increase from
1993 bookings of $548.9 million. Automation Technology bookings of $132.8
million for 1994 declined 8.5% from 1993 bookings of $145.1 million. This
decline mainly reflects continued weakness in the demand for large machine
tools and flexible manufacturing systems by industries other than those
related to the automotive sector. Integrated Automation bookings for 1994
totaled $417.4 million, a 103.2% increase from 1993 bookings of $205.4
million. The increase in bookings is attributable to significant order
placement by the domestic automotive industry. The Company believes that
order placement by the automotive sector of the economy will remain above
average in 1995. However, because automotive orders are driven by multi-
year capital investment programs with purchases in large lump-sum
increments, quarterly order patterns will continue to be subject to
volatility. European Operations' bookings decreased 77.3% to $32.8 million
in 1994, from $144.7 million in 1993. The decrease in 1994 was due to
unfavorable economic conditions (especially in the automotive sector) and
increased competitive pressures in the Company's European market. In
addition, bookings in 1993 were favorably impacted by significant orders
received from European automotive companies and a Korean automotive
company. There is potential for marginal improvement in the near-term
outlook for bookings in Europe. In the absence of such improvement, sales
and earnings from the European Operations group will be adversely affected
and further rationalization of these operations may be necessary.
Automation Measurement and Control bookings of $66.4 million for 1994
increased 23.8% over 1993 bookings of $53.6 million due mainly to large
orders received from the automotive and mining industries.
Company backlog at December 31, 1994, was $422.2 million, an increase of
$39.5 million or 10.3% from $382.7 million at 1993 year end. The increase
in backlog resulted from increased booking activity noted above, which was
concentrated mainly in the domestic automotive sector.
Consolidated sales of $619.5 million for 1994 compared to $517.5 million
in the prior year. The increase in year-to-year net sales is primarily
attributable to the Integrated Automation and European Operations groups.
Automation Technology net sales of $162.9 million in 1994 represented a
decrease of 3.4% from $168.7 million in net sales in 1993. Integrated
Automation net sales of $267.8 million in 1994 increased 37.3% from $195.0
million in the prior year. The increase in Integrated Automation sales is
the result of improvements in domestic automotive bookings which started
in the fourth quarter of 1993 and continued into 1994. European Operations
net sales of $126.6 million in 1994 increased 29.9% from $97.4 million in
1993. The increase in net sales relates mainly to significant orders
received by the European Operations group in the third quarter of 1993.
Given the level of 1994 bookings, European sales are expected to decline
at least during the first half of 1995. Automation Measurement and Control
net sales increased 10.4% from $56.3 million in 1993 to $62.2 million in
1994.
Net income available to common shareholders for 1994 of $47.9 million
increased 9.6% from 1993 net income available to common shareholders of
$43.7 million. Pre-tax income in 1994 was $77.6 million, a 10.5% increase
from 1993 pre-tax income of $70.0 million. As described in further detail
in Note 2 of Notes to Consolidated Financial Statements, 1993 and 1994
pre-tax earnings were impacted by the following nonrecurring items:
1993
In connection with the allocation of the purchase price for the Company's
acquisition of Cross & Trecker Corporation ("Cross & Trecker") which was
completed on October 31, 1991, certain liabilities were established
relating to probable facility closings both in the U.S. and abroad. As a
result of changing economic conditions, changes in senior management, and
other factors in 1993, the Company decided not to shut down two plants
previously scheduled for closing. Accordingly, the related accruals were
no longer deemed necessary. In addition, there were favorable developments
during 1993 pertaining to certain contracts with customers in the former
Soviet Union (the "Russian contracts") that had been fully reserved. The
net effect of the above and other changes in estimates with respect to
certain reserves established in connection with the Cross & Trecker
acquisition was a 1993 fourth quarter increase to pre-tax income of
approximately $23.0 million.
During 1993, the Company also recorded a restructuring charge of $8.3
million related to the closing of the Company's printed circuit board
facility in Round Lake Beach, Illinois, and the consolidation of the
Arbroath, Scotland, machine tool operations into the Company's Knowsley,
England, plant. The restructuring charge included the write-down of
inventory and fixed assets to net realizable value, termination benefits
and estimated future carrying costs through the expected dates of
disposal. Neither of these facilities represented a significant portion of
the Company's operations. The portion of the restructuring charge
representing future outlays of cash at December 31, 1993, amounted to $1.7
million.
The foregoing items resulted in a net decrease in 1993 cost of sales and
selling, general and administrative expenses of $6.0 million and $8.7
million, respectively.
1994
During the fourth quarter of 1994, certain conditions were satisfied which
allowed for a credit guarantee with respect to one of the Russian
contracts to be activated. As a result of this development, the Company
received a net payment of $32.3 million, which represented the remaining
balance owed under the contract and covered by the guarantee. The receipt
of this payment resulted in a $22.1 million increase to pre-tax income
recorded in the fourth quarter of 1994. The income recorded was net of
various costs expected to be incurred in connection with shipment and
installation of the equipment covered under the contract. For the other
Russian contract, no payments have been received and no credit guarantee
has been issued.
Other items of note concerning the comparison of 1994 vs. 1993 results of
operations are highlighted below:
The consolidated gross margin percentage (before depreciation and
amortization) decreased from 29.2% in 1993 to 20.7% in 1994. The
consolidated gross margin percentage for 1993 before the impact of the
nonrecurring items noted on previous page was 28.0%. Gross margins for
1994 were adversely impacted by competitive pricing pressures, cost
overruns on contracts booked in prior periods, and increased product
development spending. The Company currently expects that the consolidated
gross margin percentage may improve slightly in 1995 but will remain below
the 1993 level for the foreseeable future due to competitive and economic
factors.
Selling, general and administrative expenses (before depreciation and
amortization) decreased as a percentage of sales to 9.5% in 1994 from
11.9% in 1993. Selling, general and administrative expenses as a
percentage of sales for 1993 before the impact of the nonrecurring items
mentioned on previous page was 13.6%. The percentage decrease is primarily
attributable to improved engineering efficiencies, continued cost
reduction measures and the effect of a significant increase in sales
volume.
Net interest income of $1.0 million in 1994 consists mainly of income on
short-term investments offset in part by the amortization of capitalized
loan fees. Significant factors contributing to the decrease in net
interest expense from $2.9 million in 1993 to net interest income of $1.0
million in 1994 include: (1) the conversion into common stock in March
1993 of substantially all of the Company's 10% convertible subordinated
debentures (see Note 4 of Notes to Consolidated Financial Statements for
details); and (2) the repayment of all remaining outstanding debt in the
second quarter of 1993.
Other income of $.8 million for 1994 is primarily made up of royalty
income and gains on the sale of fixed assets, offset by a net loss on
foreign currency transactions.
The provision for income taxes of $29.7 million for 1994 increased from
$26.3 million in 1993. Included as a component of income tax expense for
1993 is the benefit arising from the increase in the net deferred income
tax asset of approximately $1.0 million resulting from the 1% increase in
the top U.S. corporate tax rate enacted in August 1993. The Company's
effective tax rate for 1994 was 38.3% as compared to 39.1% for the prior
year (excluding the rate change benefit). The decrease in the effective
tax rate from 1993 to 1994 is primarily due to a change in the mix of
income between various tax jurisdictions.
1993 Compared to 1992
The following table sets forth the Company's bookings by operating group
in the period and consolidated backlog at period-end on a quarterly basis
for 1993 and 1992.
April 4 July 4 Oct. 3 Dec. 31
1993: (In thousands)
Operating group:
Automation Technology $36,987 $31,716 $36,561 $39,857
Integrated Automation 26,612 59,723 39,837 79,270
European Operations 52,367 28,543 55,404 8,433
Automation Measurement
and Control 13,328 11,954 13,818 14,511
------- ------- ------- -------
Consolidated bookings $129,294 $131,936 $145,620 $142,071
======== ======== ======== ========
Consolidated backlog $349,070 $342,605 $367,857 $382,694
======== ======== ======== ========
March 29 June 28 Sept. 27 Dec. 31
1992: (In thousands)
Operating group:
Automation Technology $47,722 $65,581 $49,974 $55,382
Integrated Automation 99,911 50,386 35,782 40,631
European Operations 35,719 52,183 20,541 23,129
Automation Measurement
and Control 10,988 13,265 11,213 15,772
------- ------- ------- -------
Consolidated bookings $194,340 $181,415 $117,510 $134,914
======= ======= ======== ========
Consolidated backlog $424,702 $458,048 $411,670 $360,190
======= ======= ======= =======
Bookings for 1993 of $548.9 million represented a 12.6% decrease from 1992
bookings of $628.2 million. Automation Technology bookings of $145.1
million for 1993 declined 33.6% from 1992 bookings of $218.7 million. This
decline mainly reflected reduced demand from domestic aerospace, defense,
and government end-user markets. These market segments had been a
significant source of orders over the last several years. In light of an
anticipated weakness in demand in these domestic market segments, the
Automation Technology group engaged in an effort to penetrate new
geographic regions and market segments. In the second half of 1993, these
efforts resulted in manufacturing systems orders from China for the
production of automotive components and a major domestic systems order for
the production of motorcycle parts. Integrated Automation bookings for
1993 totaled $205.4 million, a 9.4% decrease from 1992 bookings of $226.7
million. As 1993 progressed, significant orders were received by the
Integrated Automation group from the automotive sector. European
Operations bookings increased 10.0% to $144.7 million in 1993, from $131.6
million in the comparable 1992 period. This increase included a
significant transfer line order from a European automotive manufacturer
received in the third quarter of 1993. Automation Measurement and Control
bookings of $53.6 million for 1993 increased 4.6% over 1992 bookings of
$51.2 million.
Company backlog at December 31, 1993, was $382.7 million, an increase of
$22.5 million or 6.3% from $360.2 million at 1992 year end. The increase
in backlog resulted from increased booking activity in the third and
fourth quarters of 1993.
Consolidated net sales of $517.5 million for 1993 compared to $622.9
million in the prior year. The decrease in year-to-year net sales is
primarily attributable to lower bookings in the latter half of 1992 and
the first half of 1993. Automation Technology net sales of $168.7 million
decreased 16.6% from $202.2 million. Integrated Automation net sales of
$195.0 million decreased 22.6% from $251.9 million. European Operations
net sales of $97.4 million decreased 17.1% from $117.6 million. Automation
Measurement and Control net sales increased 9.9% from $51.3 million to
$56.3 million.
Net income available to common shareholders for 1993 of $43.7 million
increased 32.9% from 1992 net income available to common shareholders of
$32.9 million. 1993 pre-tax income was $70.0 million, a 52.2% increase
from 1992 pre-tax income of $46.0 million. As described above and in Note
2 of Notes to Consolidated Financial Statements, 1993 pre-tax earnings
were impacted by certain nonrecurring items. These items resulted in a net
decrease in cost of sales and selling, general and administrative expenses
of $6.0 million and $8.7 million, respectively. Other factors contributing
to the increase in 1993 net income available to common shareholders are
highlighted below.
The consolidated gross margin percentage (before depreciation and
amortization) increased from 25.1% in 1992 to 29.2% in 1993. Included in
the gross margin total for 1993 is the $6.0 million impact of the
nonrecurring items noted above consisting of the release of purchase price
reserves of $11.6 million, the benefit of which was offset in part by
charges totaling $5.6 million relating to the shutdown of two facilities.
The consolidated gross margin percentage for 1993 before the impact of
these items was 28.0%, which compares favorably to the 1992 gross margin
percentage of 25.1%. The improvement over 1992 reflects the benefits of
cost reduction and rationalization programs as well as the "gross up"
impact of adopting Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109) (see Note 7 of Notes to
Consolidated Financial Statements for details on the impact of adopting
SFAS No. 109). The improvement in the 1993 gross margin percentage was
more evident in the first half of the year. In the second half of 1993,
competitive pricing pressures, reduced sales volume, and increased product
development spending resulted in a lower gross margin percentage.
Selling, general and administrative expenses (before depreciation and
amortization) decreased as a percentage of sales to 11.9% in 1993 from
14.5% in 1992. Included in the selling, general and administrative
expenses total for 1993, is the $8.7 million impact of the nonrecurring
items noted above consisting of the release of purchase price reserves of
$11.4 million and charges totaling $2.7 million related to the shutdown of
two facilities. Selling, general and administrative expenses as a
percentage of sales for 1993 before the impact of these items was 13.6%.
The percentage decrease from 14.5% in 1992 to 13.6% in 1993 reflects the
benefits of the continued rationalization of the selling, general and
administrative functions throughout the Company and the "gross up" impact
of adopting SFAS No. 109.
Net interest expense of $2.9 million in 1993 consists mainly of
amortization of capitalized loan fees and interest on the Company's 10%
convertible subordinated debentures and other outstanding debt.
Significant factors contributing to the decrease in net interest expense
from $8.2 million in 1992 to $2.9 million in 1993 include: (1) the
repayment of approximately $47.9 million of borrowings under a domestic
credit agreement in June 1992, with the net proceeds from the sale of
common stock; (2) the conversion into common stock in March 1993 of
substantially all of the Company's 10% convertible subordinated debentures
(see Note 4 of Notes to Consolidated Financial Statements for details);
and (3) the repayment of all remaining outstanding debt in the second
quarter of 1993.
Other expense of $1.9 million for 1993 is primarily made up of foreign
currency losses and amortization of foreign currency exchange contract
costs.
The provision for income taxes of $26.3 million for 1993 increased from
$10.5 million in 1992. Included as a component of income tax expense for
1993 is the benefit arising from the increase in the net deferred income
tax asset of approximately $1.0 million resulting from the 1% increase in
the top U.S. corporate tax rate enacted in August 1993. The Company's
effective tax rate for 1993 amounted to 39.1% (excluding the deferred tax
adjustment effect) as compared to 22.8% for the prior year. The increase
in the effective tax rate from 1992 to 1993 is primarily due to the
adoption of SFAS No. 109 (see Note 7 of Notes to Consolidated Financial
Statements for details on the impact of adopting SFAS No. 109).
Liquidity and Capital Resources at December 31, 1994
On December 31, 1994, the Company had $24.1 million of cash and cash
equivalents on hand, which is a decrease of $29.8 million from the balance
on hand at the beginning of the year. For the year ended December 31,
1994, operating activities used $14.5 million of cash. Net operating
assets and liabilities increased by $90.3 million due primarily to higher
accounts receivable and inventory balances, partially offset by a net
increase in accounts payable and accrued expenses. The $97.8 million
increase in accounts receivable is due primarily to an increase of $144.8
million in unbilled receivables on the Company's long-term contracts in
process. Payment terms on most large contracts are back-end loaded,
resulting in cash outflows during periods of rising activity. The $17.4
million increase in inventory is largely attributable to the higher
production volume. The $26.1 million increase in accounts payable and
accrued expenses reflects the elevated purchasing activity required to
support the increased contract volume.
Investing activities used $12.6 million, which included $16.7 million in
capital expenditures. Net proceeds from the sale of fixed assets generated
$1.4 million of cash, while the disposition of assets held for sale
provided cash of $4.5 million. Financing activities used cash of $3.6
million consisting mainly of dividend payments of $4.1 million.
The Company's available borrowing capacity at December 31, 1994, amounted
to $153.2 million under a domestic credit agreement and $47.0 million
under foreign lines of credit. The Company had no debt outstanding at
December 31, 1994.
Capital expenditures were $16.7 million, $18.8 million and $13.6 million
in 1994, 1993 and 1992, respectively. The Company expects commitments for
capital projects carried over from 1994, along with new projects proposed
for 1995, to result in capital expenditures of approximately $20 million
in 1995. The main focus of 1995 capital expenditures will be productivity
enhancement.
In addition, the Company expended $67.4 million, $57.4 million and $56.5
million in 1994, 1993 and 1992, respectively, on research, product
development and customer-sponsored engineering programs. Spending for such
activities is expected to remain steady at approximately $67 million in
1995 as a result of consistent sales volume and comparable product
development activities.
The Company believes its cash flows from operations and funds available
under domestic and foreign credit agreements will be adequate to finance
capital expenditures and working capital requirements for the foreseeable
future. The Company continues to evaluate acquisition opportunities
to further its strategic business objectives. The Company expects that
any acquisition would be financed from current cash balances, funds
generated from operations, available borrowings, or alternative financing
sources.
The Company is involved in environmental matters concerning facilities and
sites owned or formerly owned by the Company, its subsidiaries or alleged
predecessors. As described in Note 5 of Notes to Consolidated Financial
Statements, those matters include an environmental remediation at the
Company's West Allis, Wisconsin, property and a criminal complaint and
civil lawsuits concerning its Menominee, Michigan, facility.
In connection with these sites, the Company has incurred various
expenditures to date on both investigative activities and remediation
efforts. Estimated future clean-up and other costs associated with these
environmental contingencies have been accrued in the Company's balance
sheet in instances where losses have been determined to be probable and
reasonably estimable. Management believes that future costs in excess of
the amounts accrued on all presently known and quantifiable environmental
contingencies will not be material to the Company's financial position or
results of operation. As referenced in Note 5 of Notes to Consolidated
Financial Statements, information currently available to the Company does
not allow it to reasonably estimate the damages, penalties and/or
remediation costs, if any, that may be incurred with respect to the
Menominee, Michigan, facility. Recurring costs incurred by the Company and
associated with managing hazardous substances and pollution at on-going
operations generally are not significant.
Market Prices and Dividends
The Company's common stock is traded on The Nasdaq National Market System
under the symbol GIDL. The following table sets forth information as to
the high and low last sales prices per share of common stock as quoted on
Nasdaq and the cash dividends declared per share for the periods
indicated.
Sales Price
Low High Dividends
1994:
First quarter $ 25 $ 28 $.03
Second quarter 14 7/8 27 1/4 .03
Third quarter 15 5/8 20 3/8 .03
Fourth quarter 13 7/8 17 5/8 .03
1993:
First quarter $23 3/4 $29 3/8 $.03
Second quarter 20 28 3/4 .03
Third quarter 19 1/2 24 1/2 .03
Fourth quarter 21 1/8 27 3/4 .03
As of February 17, 1995, there were approximately 2,514 record holders of
the Company's common stock.
The Board of Directors of the Company intends to consider the payment of
cash dividends on the common stock on a quarterly basis, but the
declaration of future dividends will necessarily be dependent upon
business conditions, the earnings and financial position of the Company
and such other matters as the Board of Directors deems relevant. For
information on restrictions on the payment of cash dividends on the common
stock, see Note 4 of Notes to Consolidated Financial Statements.
<PAGE>
[Pages 20-35 of the Annual Report]
Consolidated Statements of Income
Years Ended December 31,
1994 1993 1992
(In thousands, except share and per
share data)
Net sales $619,471 $517,462 $622,934
Costs and expenses:
Cost of sales (Note 2) 491,397 366,444 466,791
Selling, general and
administrative expenses (Note
2) 58,977 61,474 90,078
Depreciation and amortization 15,399 14,768 14,239
Income from Russian contract
(Note 2) (22,128) - -
------- ------- -------
Total operating expenses 543,645 442,686 571,108
------- ------- -------
Operating income 75,826 74,776 51, 826
Interest expense (income), net (1,025) 2,898 8,158
Other expense (income) (755) 1,851 (2,356)
------- ------- -------
Income before provision for income
taxes 77,606 70,027 46,024
Provision for income taxes (Note
7) 29,726 26,321 10,492
------- ------- --------
Net income 47,880 43,706 35,532
Senior preferred stock dividends - - 2,636
------- ------- --------
Net income available to common
shareholders $47,880 $43,706 $32,896
======= ======= =======
Per common share amounts:
Net income available to common
shareholders $1.40 $1.31 $ 1.16
====== ======= ======
Dividends declared:
Common stock $ .12 $ .12 $ .11
====== ======= =======
Senior preferred stock $ - $ - $12.50
====== ======= =======
Average number of common shares
outstanding 34,284,095 33,415,429 28,343,827
========== ========== ===========
See accompanying notes.
<PAGE>
Consolidated Statements of Cash Flows
Years Ended December 31,
1994 1993 1992
Operating activities (In thousands)
Net income $ 47,880 $43,706 $35,532
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 15,399 14,768 14,239
Deferred income taxes 20,996 14,608 (663)
Long-term employee benefits and
other long-term liabilities (4,696) 462 (2,911)
Changes in operating assets and
liabilities:
Accounts receivable (91,621) 74,148 (80,764)
Inventories (16,719) (3,340) 4,166
Other current assets (6,928) 1,707 (3,215)
Accounts payable and accrued
liabilities 20,267 (67,275) (3,527)
Foreign currency transaction
(gains) losses 669 2,270 (1,817)
Other 291 3,077 (3,425)
------- ------- -------
Net cash provided (used) by operating
activities (14,462) 84,131 (42,385)
Investing activities
Additions to property, plant and
equipment (16,747) (18,849) (13,580)
Proceeds from sale of assets 5,875 10,015 6,144
Return of pledged funds (Note 2) - - 8,675
Other (1,759) 229 25
------- ------- ------
Net cash provided (used) by investing
activities (12,631) (8,605) 1,264
Financing activities
Proceeds from draws on lines of
credit 49,000 9,462 58,733
Repayments under lines of credit and
notes payable (49,000) (27,813) (52,574)
Repayments of long-term borrowings - (11,000) (47,916)
Proceeds from additional stock
issuance 487 3,354 84,285
Payments on debenture redemptions and
expenses on conversions - (224) -
Cash dividends (4,115) (4,072) (5,764)
------- -------- -------
Net cash provided (used) by financing
activities (3,628) (30,293) 36,764
Effect of exchange rate changes on
cash 916 143 792
-------- ------- -------
Net increase (decrease) in cash and
cash equivalents (29,805) 45,376 (3,565)
Cash and cash equivalents at
beginning of year 53,877 8,501 12,066
-------- ------- -------
Cash and cash equivalents at end of
year $ 24,072 $53,877 $8,501
======== ======== =======
Supplemental disclosure of cash flow
information -
Cash paid during the year for:
Interest $ 848 $ 1,709 $8,990
======= ======== =======
Income taxes, net of refunds $2,491
received $12,073 $10,016
======= ======= ======
See accompanying notes.
<PAGE>
Consolidated Balance Sheets
December 31,
1994 1993
(In thousands, except
share data)
Current assets:
Cash and cash equivalents $ 24,072 $ 53,877
Accounts receivable, net of allowance
for doubtful accounts (Notes 1 and
3) 343,881 246,130
Inventories (Notes 1 and 3) 74,823 57,393
Deferred income taxes (Note 7) 9,455 23,770
Other current assets 10,923 6,304
------- -------
Total current assets 463,154 387,474
Fixed assets, net (Notes 1 and 3) 107,164 101,269
Costs in excess of net acquired assets
(Notes 1 and 7) 84,997 91,386
Deferred income taxes (Note 7) 18, 968 20,990
Other assets 12,943 12,897
------- --------
Total assets $687,226 $614,016
======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 76,562 $ 31,059
Accrued expenses and other liabilities
(Note 3) 78,912 98,337
------- -------
Total current liabilities 155,474 129,396
Long-term employee benefits and other
long-term liabilities (Notes 3 and
6) 46,454 48,610
-------- -------
Total liabilities 201,928 178,006
Commitments and contingencies (Note 5)
Shareholders' equity (Notes 4 and 8):
Senior preferred stock - -
Class A preferred stock - -
Common stock, 34,294,404 and
34,254,068 shares issued and
outstanding at December 31, 1994 and
1993, respectively 3,429 3,425
Capital in excess of par 325,063 323,679
Retained earnings 158,4 57 114,692
Cumulative translation adjustment 174 (3,444)
Unamortized compensation expense (1,825) (2,342)
------- -------
Total shareholders' equity 485,298 436,010
------- -------
Total liabilities and shareholders' $614,016
equity $687,226
======== =======
See accompanying notes.
<PAGE>
<TABLE>
Consolidated Statements of Changes in Shareholdes' Equity
Years ended December 31, 1994, 1993 and 1992
<CAPTION>
Preferred Stock Common Stock
-------------------- -------------------- Capital in
Excess of Retained
Shares Amount Shares Amount Par Earnings
(In thousands, except share amounts)
<C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 230,000 $ 57,500 26,297,338 $2,630 $164,993 $45,290
Net issuance of shares under
restricted stock awards and
stock option plans - - 292,800 30 2,750 -
Tax benefit related to
exercise of stock options - - - - 1,541 -
Issuance of shares of common
stock in connection with
public stock offering - - 3,750,000 375 82,045 -
Conversion of senior
preferred stock to common
stock (10) (2) 154 - 2 -
Exchange of senior preferred
stock for convertible
debentures (229,990) (57,498) - - - -
Conversion of convertible
debentures to common stock - - 17,489 2 280 -
Net income - - - - - 35,532
Amortization of compensation
expense - - - - - -
Cash dividends - - - - - (5,764)
Translation adjustment - - - - - -
Other - - 7,416 - (10) -
-------- -------- ------- ------- -------- --------
Balance, December 31, 1992 - - 30,365,197 3,037 251,601 75,058
Net issuance of shares under
restricted stock awards and
stock option plans - - 352,780 35 4,427 -
Tax benefit related to
exercise of stock options - - - - 1,775 -
Conversion of convertible
debentures to common stock,
net of expense (Note 4) - - 3,538,133 354 58,258 -
Effect of income tax
accounting change (Note 7) - - - - 7,626 -
Net income - - - - - 43,706
Amortization of compensation
expense - - - - - -
Cash dividends - - - - - (4,072)
Translation adjustment - - - - - -
Other - - (2,042) (1) (8) -
-------- -------- ---------- ------- -------- ------
Balance, December 31, 1993 - - 34,254,068 3,425 323,679 114,692
Net issuance of shares under
restricted stock awards and
stock option plans - - 40,370 4 530 -
Tax benefit related to
exercise of stock options
and vesting of restricted
stock - - - - 854 -
Net income - - - - - 47,880
Amortization of compensation
expense - - - - - -
Cash dividends - - - - - (4,115)
Translation adjustment - - - - - -
Other - - (34) - - -
--------- ---------- ---------- --------- -------- -------
Balance, December 31, 1994 - $ - 34,294,404 $3,429 $325,063 $158,457
========= ========== ========== ========= ======== ========
<CAPTION>
Cumulative Unamortized Total
Translation Compensation Shareholders'
Adjustment Expense Equity
<C> <C> <C> <C>
Balance, December 31, 1991 $3,450 $(1,668) $272,195
Net issuance of shares under
restricted stock awards
and stock option plans - (997) 1,783
Tax benefit related to
exercise of stock options - - 1,541
Issuance of shares of common
stock in connection with
public stock offering - - 82,420
Conversion of senior
preferred stock to common
stock - - -
Exchange of senior preferred
stock for convertible
debentures - - (57,498)
Conversion of convertible
debentures to common stock - - 282
Net income - - 35,532
Amortization of compensation
expense - 700 700
Cash dividends - - (5,764)
Translation adjustment (5,257) - (5,257)
Other - - (10)
------- -------- --------
Balance, December 31, 1992 (1,807) (1,965) 325,924
Net issuance of shares under
restricted stock awards
and stock option plans - (1,701) 2,761
Tax benefit related to
exercise of stock options - - 1,775
Conversion of convertible
debentures to common
stock, net of expense
(Note 4) - - 58,612
Effect of income tax
accounting change (Note 7) - - 7,626
Net income - - 43,706
Amortization of compensation
expense - 1,324 1,324
Cash dividends - - (4,072)
Translation adjustment (1,637) - (1,637)
Other - - (9)
------- --------- ---------
Balance, December 31, 1993 (3,444) (2,342) 436,010
Net issuance of shares under
restricted stock awards
and stock option plans - (852) (318)
Tax benefit related to
exercise of stock options
and vesting of restricted
stock - - 854
Net income - - 47,880
Amortization of compensation
expense - 1,369 1,369
Cash dividends - - (4,115)
Translation adjustment 3,618 - 3,618
Other - - -
------- ------ -------
Balance, December 31, 1994 $ 174 $(1,825) $485,298
======= ========= =========
</TABLE>
See accompanying notes.
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Giddings &
Lewis, Inc. and all of its wholly owned subsidiaries (collectively, the
Company). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents.
Revenue Recognition and Receivables
Revenue is reported on the percentage-of-completion (POC) method of
accounting for all long-term contracts and the completed contract method
for other products. Progress on POC contracts is measured by costs
incurred to date compared with an estimate of total costs at the project's
completion. Provision is made for the entire amount of expected losses, if
any, in the period in which such losses are first determinable. Revenue on
completed contract sales is recognized upon shipment to the customer.
Customers are billed according to the terms of the contract. Unbilled
receivables include amounts recognized as revenue under the POC basis but
not billed to the customer. Retainers are billed upon shipment and are due
upon customer acceptance. Substantially all receivables, including
retainers, are collectible within one year.
Included in accounts receivable are unbilled receivables of $249,357,000
and $104,564,000 at December 31, 1994 and 1993, respectively. At December
31, 1994 and 1993, there were $23,019,000 and $35,266,000, respectively,
of retainers included in accounts receivable.
The Company is subject to certain credit risks, including a concentration
of accounts receivable balances with its worldwide automotive and related
customers, which totaled approximately $271,000,000 and $142,800,000 at
December 31, 1994 and 1993, respectively.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost
is determined by the first-in, first-out (FIFO), last-in, first-out (LIFO)
or average methods. Approximately $10,156,000 and $8,478,000 of the
inventories at December 31, 1994 and 1993, respectively, are valued on the
LIFO basis. If the FIFO inventory method, which approximates replacement
cost, had been used for these inventories, they would have been $388,000
and $387,000 greater at December 31, 1994 and 1993, respectively.
Fixed Assets
Property, plant and equipment are carried at cost. Depreciation of plant
and equipment is determined on the straight-line basis over the estimated
useful lives of the assets which range from 3 to 20 years.
Costs in Excess of Net Acquired Assets
Costs in excess of net acquired assets represent the excess of the 1991
purchase price for Cross & Trecker Corporation (Cross & Trecker) over the
fair value of assets acquired less liabilities assumed. The Company is
amortizing costs in excess of net acquired assets over 40 years using the
straight-line method. Accumulated amortization was $8,869,000 and
$6,456,000 at December 31, 1994 and 1993, respectively. Costs in excess of
net acquired assets are also reduced for benefits from tax loss
carryforwards of acquired companies as they are recognized (see Note 7).
Research and Development
Research and development expense pertaining to new products or significant
improvement to existing products was $3,857,000, $4,064,000 and $3,841,000
for the years ended December 31, 1994, 1993 and 1992, respectively. The
total expenditure for research, product development and customer sponsored
engineering was $67,398,000, $57,413,000 and $56,525,000, respectively,
for the periods noted above.
Foreign Currency Translation and Transactions
Assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars using current exchange rates, and statement
of income items are translated using weighted average exchange rates for
the year. For the years ended December 31, 1994, 1993 and 1992, gains and
(losses) on foreign currency transactions amounted to $(669,000),
$(2,270,000) and $1,817,000, respectively, and are included in other
expense/income in the accompanying consolidated statements of income.
Net Income Per Common Share
Net income per common share in 1994, 1993 and 1992, was computed by
dividing net income available to common shareholders by the weighted
average number of common shares outstanding during the respective periods.
Neither stock options, nor other dilutive securities (in 1992 and 1993
when such securities were outstanding), were materially dilutive, alone or
in combination.
Business
The Company's operations are conducted in one business segment: the
design, production and integration of smart manufacturing systems,
flexible transfer lines, automated assembly systems, high-precision
automated machine tools, coordinate measuring machines, industrial control
systems and other related products and services. Approximately 15.9% and
14.2% of the Company's 1994 sales were to two different customers,
respectively. Approximately 29.7% and 20.2% of the Company's sales in the
years ended December 31, 1993 and 1992, respectively, were derived from a
single customer in each year.
2. Nonrecurring Items
Effective October 31, 1991, Cross & Trecker, a manufacturer of machine
tools and related factory automation equipment, was acquired by the
Company. The acquisition was accounted for under the purchase method of
accounting.
1993
In connection with the allocation of the purchase price for the Cross &
Trecker acquisition, certain liabilities were established relating to
probable facility closings both in the U.S. and abroad. As a result of
changing economic conditions, changes in senior management, and other
factors, in 1993 the Company decided not to shut down two of the plants
scheduled for closing. Accordingly, the related accruals were no longer
deemed necessary. In addition, during 1993 there were favorable
developments pertaining to certain Russian contracts, including the
receipt of certain downpayments, (see discussion under 1994 nonrecurring
item) that had been fully reserved. The net effect of these and other
changes in estimates with respect to certain liabilities established in
connection with the Cross & Trecker acquisition was a 1993 fourth quarter
increase to pre-tax income of approximately $23 million as shown below.
The Company also recognized a pre-tax restructuring charge in the fourth
quarter of 1993 of approximately $8.3 million related to the closing of
two facilities. The restructuring charge consists primarily of inventory
and fixed asset write-downs to net realizable value, termination benefits
and estimated future facility carrying costs through the expected dates of
disposal.
The impact of these items on 1993's results of operations is summarized
below:
Purchase
Price
Accounting Restructuring Net
Reserves Charges Benefit
(In thousands)
Cost of sales $11,593 $(5,625) $ 5,968
Selling, general and
administrative expenses 11,410 (2,643) 8,767
--------- --------- ---------
Total $23,003 $(8,268) $14,735
========= ========= =========
1994
In connection with the Cross & Trecker acquisition, each holder of Cross &
Trecker common stock received, among other consideration, one
nontransferable contingent payment right per share to receive payments of
up to $.70 in cash. At the effective time of the acquisition, the Company
deposited $8.7 million with a trustee relating to the contingent payment
rights. Payments were required to be made from such fund to holders of the
contingent payment rights in the event that payments were received or
certain credit guarantees were issued within specified time periods
relating to two Russian contracts entered into by Cross & Trecker prior to
the acquisition. The Russian contracts totaled approximately $48.2
million.
As a result of failing to receive either payment on or active guarantees
relating to these contracts within the time periods specified, the entire
$8.7 million pledged with respect to such contracts, plus earned interest,
was returned to the Company during 1992, and included in the purchase
price allocation.
In light of the political and economic instability in the former Soviet
Union, the Company was unable to predict when or if effective guarantees
(see below) would be obtained or additional payments would be received.
Accordingly, at the time of the Cross & Trecker acquisition, the Company
wrote off the uncollected receivables and reserved for the costs committed
to be incurred with respect to these contracts.
During the fourth quarter of 1994, the necessary conditions were met such
that a credit guarantee was activated in connection with one of the
Russian contracts referred to above. As a result, the Company received a
net payment of $32.3 million, which represented the remaining balance owed
under the contract and covered by the guarantee. The receipt resulted in a
$22.1 million increase to pre-tax income recorded in the fourth quarter of
1994. The income recorded was net of various costs expected to be incurred
in connection with shipment and installation.
For the other Russian contract, no payments have been received and no
credit guarantee has been issued.
3. Additional Balance Sheet and Cash Flow Information
1994 1993
(In thousands)
Receivables -
Allowance for doubtful
accounts $ 922 $ 973
======= ========
Inventories:
Raw materials $ 37,166 $ 29,613
Work-in-process 27,568 16,594
Finished goods 10,089 11,186
--------- --------
$ 74,823 $ 57,393
========= =======
Fixed assets:
Land $ 7,826 $ 7,125
Buildings 66,462 64,313
Machinery and equipment 137,681 124,837
-------- ---------
211,969 196,275
Less accumulated depreciation (104,805) (95,006)
--------- --------
$ 107,164 $101,269
========= ========
Accrued expenses and other
liabilities:
Payroll and related expenses $13,640 $18,191
Installation and warranty
accruals 19,165 17,196
Restructuring costs 2,936 11,697
Self-insurance reserves 6,067 7,820
Other current liabilities 37,104 43,433
-------- --------
$78,912 $98,337
Long-term employee benefits and
other long-term liabilities:
Postretirement health care
obligations $13,764 $14 ,778
Pension and retirement plan
obligations 18,917 16,398
Environmental liabilities 13,773 17,434
------- -------
$46,454 $48,610
======= =======
A significant non-cash transaction during 1994 was as follows:
- Decrease in costs in excess of net acquired assets of $4 million, due
to the recognition of certain acquired foreign net operating loss
carryforwards.
Significant non-cash transactions during 1993 were as follows:
- Conversion of 10% Convertible Subordinated Debentures due 2015
(Debentures), $58.6 million of principal and accrued interest (net of
tax), to common stock (see Note 4).
- Effect of adopting Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS No. 109) (see Note 7).
- Net decrease in costs in excess of net acquired assets of
$16.6 million due to the utilization or initial benefit recognition of
acquired tax loss carryforwards (see Note 7).
Significant non-cash transactions during 1992 were as follows:
- Exchange of 230,000 shares of Convertible Exchangeable Series A Senior
Preferred Stock (Series A Senior Preferred Stock) for Debentures
(see Note 8).
- Net increase in costs in excess of net acquired assets of
$16.2 million due to adjustments to the preliminary allocation of the
purchase price of Cross & Trecker and utilization of U.S. Federal tax
loss carryforwards (see Note 7).
4. Financing Arrangements
The Company has a multicurrency credit agreement (Credit Agreement) with a
syndicate of financial institutions for an unsecured $175 million
revolving credit facility. The Credit Agreement matures in December 1997.
At December 31, 1994, there were no borrowings under the Credit Agreement;
however, outstanding letters of credit totaled $21.8 million and reduce
the amount available under the Credit Agreement. The Credit Agreement
carries an interest rate equal to a Base Rate, as defined, or LIBOR plus
.225%. The Company is required to pay certain fees and expenses from time
to time, including agent fees and commitment fees of .125% of the unused
portion available under the Credit Agreement.
The Credit Agreement contains various covenants and restrictions,
including customary financial covenants, additional debt limitations and
restrictions on payment of dividends.
The dividend restrictions prohibit the Company from paying cash dividends
on its common stock in excess of 40% of the Company's consolidated net
earnings after tax in any fiscal quarter, less amounts paid to redeem
capital stock in such quarter. This limitation is subject to certain
carryforward provisions.
At December 31, 1994, the Company had foreign lines of credit that
approximated $85 million, with no borrowings outstanding. Borrowings under
the foreign lines of credit bear interest at an average rate of 8.7%.
Outstanding foreign letters of credit at December 31, 1994, approximated
$38 million, and reduces the amounts available under the foreign lines of
credit.
On June 15, 1992, in accordance with the terms of the Series A Senior
Preferred Stock, the Company exercised its option to exchange such stock
for its Debentures. All outstanding shares of Series A Senior Preferred
Stock were exchanged for Debentures at a rate of $250 principal amount of
Debentures for each share of Series A Senior Preferred Stock. On February
12, 1993, the Company called the Debentures for redemption on March 15,
1993. In connection therewith, substantially all holders of the Debentures
elected conversion into common stock instead of redemption. The $58.6
million of principal and accrued interest (net of tax) relating to
Debentures converted into shares of common stock during the first quarter
of 1993 is reflected as an increase in shareholders' equity.
Interest expense for the years ended December 31, 1994, 1993 and 1992, was
$1,970,000, $4,147,000 and $9,185,000, respectively.
5. Commitments and Contingencies
The Company has operating leases and service contracts covering primarily
office space and data processing equipment. Future minimum lease payments
under these commitments at December 31, 1994, were as follows (in
thousands):
1995 $2,767
1996 2,185
1997 1,349
1998 324
1999 107
Thereafter 204
------
$6,936
======
Total expense for all operating leases for the years ended December 31,
1994, 1993 and 1992, was $3,263,000, $3,983,000 and $4,607,000,
respectively.
The Company is involved in various environmental matters, including
matters in which the Company and certain of its subsidiaries or alleged
predecessors have been named as potentially responsible parties under the
Comprehensive Environmental Response Compensation and Liability Act
(CERCLA). These matters include a soil and water contamination matter at
its former West Allis, Wisconsin, facility. In 1992, the Company was
notified by the Wisconsin Department of Natural Resources (WDNR) of
contamination at the West Allis site. In 1994, the Company sold most of
the site, including the manufacturing facility. The Company is currently
implementing a WDNR approved clean-up plan on the portion of the site that
was not sold.
The Company has established accruals ($13.8 million and $17.4 million at
December 31, 1994 and 1993, respectively) for all environmental
contingencies of which management is currently aware in accordance with
generally accepted accounting principles. In establishing these accruals,
management considered: (a) reports of environmental consultants retained
by the Company; (b) the costs incurred to date by the Company at sites
where clean-up is presently ongoing and the estimated costs to complete
the necessary remediation work remaining at such sites; (c) the financial
solvency, where appropriate, of other parties that have been responsible
for effecting remediation at specified sites; and (d) the experience of
other parties who have been involved in the remediation of comparable
sites. The accruals recorded by the Company with respect to environmental
matters have not been reduced by potential insurance or other recoveries
and are not discounted. Although the Company has and will continue to
pursue such claims against insurance carriers and other responsible
parties, future potential recoveries remain uncertain and, therefore, were
not recorded as a reduction to the estimated gross environmental
liabilities. Based on the foregoing and given current information,
management believes that future costs in excess of the amounts accrued on
all presently known and quantifiable environmental contingencies will not
be material to the Company's financial position or results of operations.
In another matter, a Michigan Department of Natural Resources'
investigation into alleged environmental violations at the Company's
Menominee, Michigan, facility has resulted in the issuance of a criminal
complaint against the Company and two of its employees. The complaint
generally is focused on alleged releases of hazardous substances and the
alleged illegal treatment and disposal of hazardous wastes. Two civil
lawsuits are also pending which allege improper disposal and emissions at
this facility. The Company is vigorously defending itself against all
charges and allegations. Information presently available to the Company
does not enable it to reasonably estimate potential civil or criminal
penalties, or remediation costs, if any, related to this matter.
The Company is also involved in other litigation and proceedings,
including product liability claims. In the case of product liability, the
Company is partially self-insured and has accrued for all claim exposure
for which a loss is probable and reasonably estimable. Based on current
information, management believes that future costs in excess of the
amounts accrued for all existing litigation will not be material to the
Company's financial position or results of operations.
6. Employee Benefit Plans
Domestic Defined Benefit Plans
The Company has defined benefit plans that cover substantially all U.S.
employees. Benefits for salaried employees generally are based on earnings
and years of service while hourly employee benefits generally are a fixed
amount for each year of service. The Company annually contributes to the
defined benefit plans amounts which are actuarially determined to provide
the plans with sufficient assets to meet future benefit payment
requirements. Plan assets are invested primarily in listed stocks, money
market instruments, fixed income securities and U.S. corporate bonds.
Net periodic pension expense for the Company's domestic defined benefit
retirement plans includes the following components:
1994 1993 1992
(In thousands)
Service cost $3,436 $2,907 $4,211
Interest cost 7,0 47 6,900 6,625
Actual (return)/ loss on
assets 744 (8,115) (4,295)
Net amortization and
deferral (7,097) 2,030 (1,204)
------- ------- ------
Net periodic pension expense $4,130 $3,722 $5,337
======= ======= =======
The following table presents a reconciliation of the funded status of the
Company's domestic defined benefit plans at December 31:
1994 1993
(In thousans)
Actuarial present value of
benefit obligations:
Vested benefits $ 76,463 $ 72,638
Nonvested benefits 5,843 9,147
------- -------
Accumulated benefit
obligation 82,306 81,785
Effect of assumed increases
in compensation levels 15,541 12,179
------- ------
Projected benefit obligation 97,847 93,964
Plan assets at fair value 78,090 82,658
-------- --------
Projected benefit obligation
in excess of plan assets (19,757) (11,306)
Unrecognized net loss (gain) 1,318 (3,646 )
Unrecognized prior service
cost 1,099 1,234
-------- --------
Accrued pension cost $(17,340) $(13,718)
======== ========
The assumptions used in determining pension expense (for the following
year) and funded status information shown above were as follows:
1994 1993 1992
Discount rate 8.25% 7.5% 8.5%
Rate of salary progression 5.0% 5.0% 6.0%
Long-term rate of return on assets 8.0% 8.0% 8.0%
The change in the discount rate assumption at December 31, 1994, decreased
the projected benefit obligation by $10,377,000. The change in the
discount rate and the rate of salary progression assumptions at December
31, 1993, increased the projected benefit obligation by $9,064,000.
Foreign Defined Benefit Plans
Benefits of the defined benefit plans for the Company's foreign employees
are based on years of service and the employees' compensation during
employment. Substantially all of the plan assets are held in commingled
trust accounts. The Company's foreign funding policy is to contribute
annually the minimum amount required to comply with local statutory
requirements.
Net periodic pension income for the Company's foreign defined benefit
plans includes the following components:
1994 1993 1992
(In thousands)
Service cost $ 729 $ 1,036 $ 1,066
Interest cost 1,595 1,720 1,830
Actual (return)/loss on assets 1,65 0 (6,710) (4,577)
Net amortization and deferral (5,333) 3,453 1,407
------- ------- --------
Net periodic pension income $(1,359) $ (501) $ (274)
======= ======== ========
During 1994, settlements relating to the Company's foreign plans resulted
in gains of approximately $500,000.
The following table presents a reconciliation of the funded status of the
Company's foreign defined benefit plans at December 31:
1994 1993
(In thousands)
Actuarial present value of benefit
obligations:
Vested benefits $19,514 $18,923
Nonvested benefits - -
------- ---------
Accumulated benefit obligation 19,514 18,923
Effect of assumed increases in
compensation levels 2,817 2,042
------- --------
Projected benefit obligation 22,331 20,965
Plan assets at fair value 30,782 32,098
------- --------
Projected benefit obligation less
than plan assets 8,451 11,133
Unrecognized net (gain)/loss 440 (3,545)
Unrecognized net transition asset (5,805) (6,458)
Unrecognized prior service cost 1,169 1,184
======= =======
Prepaid pension cost $4,255 $ 2,314
======= =======
The assumptions used in determining foreign pension expense (for the
following year) and funded status information shown above were as follows:
1994 1993 1992
Discount rate 9.0% 8.0% 9.0%
Rate of salary progression 5.0% 5.0% 8. 0%
Long-term rate of return on assets 9.0% 9.0% 10.0%
The change in the above assumptions at December 31, 1994, decreased the
projected benefit obligation by approximately $3,287,000. The change in
the above assumptions at December 31, 1993, decreased the projected
benefit obligation by approximately $502,000.
Defined Contribution Plans
The Company also has certain defined contribution plans that cover
substantially all full-time employees. Contributions to the plans are
based on a percentage of employee earnings. Costs of these plans charged
to operations were $2,024,000, $1,745,000 and $2,118,000 in 1994, 1993 and
1992, respectively.
Other Postretirement Benefit Plans
The Company provides health care benefits, and certain life insurance
benefits, to certain retired employees. The types of benefits, retiree
contributions, and eligibility for benefits varied among the various divi-
sions and are unfunded. Benefits for plan participants age 65 and older
are integrated with Medicare under all plans. The Company funds costs as
incurred under the plans.
In 1992, the Company executed amendments to the various retiree medical
plans that: (a) require all employees retiring after June 1, 1992, and
electing to continue coverage through the Company's group health plan to
pay 100% of the retiree premium cost (in addition, such coverage is
provided only until age 65); (b) increase the required contributions for
existing retirees and freeze the Company's contribution level such that
all future health care cost increases will be borne by retirees; and (c)
eliminate retiree life insurance coverage for those employees retiring
after June 1, 1992.
The following sets forth the plans' status reconciled with the amounts
recognized in the Company's balance sheet as of December 31:
1994 1993
(In thousands)
Accumulated postretirement
benefit obligation:
Fully eligible actives $ - $ -
Current retirees (11,985) (15,583)
-------- --------
(11,985) (15,583)
Unrecognized net (gain)/loss (1,779) 805
-------- -------
Accrued long-term employee
benefit $(13,764) $(14,778)
======== ========
The periodic postretirement benefit cost included in the statement of
income is as follows:
1994 1993 1992
(In thousands)
Service cost $ - $ 3 $ 7
Interest 934 1,220 1,291
Amortization (68) - -
----- ------- -------
Total $866 $1,223 $1,298
===== ======= =======
Because of the plan amendments described above, a one percent change in
the healthcare trend rate assumption does not have any material impact on
the Company's obligation. Similarly, the healthcare cost trend rate is not
a factor in computing the benefit obligation. A discount rate of 8.25% and
7.5% was used to present value all future health care and life insurance
liabilities at December 31, 1994 and 1993, respectively.
7. Income Taxes
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes." The adoption of SFAS No. 109 changed the Company's
method of accounting for income taxes from the deferred method to the
liability method. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax
bases of assets and liabilities, and are measured using enacted tax rates
and laws that will be in effect when the differences are expected to
reverse. As permitted under SFAS No. 109, the new rules were adopted
prospectively by the Company and, thus, prior years' financial statements
were not restated.
The adoption of SFAS No. 109 did not result in a cumulative effect
adjustment to net income nor does it affect the actual amount of income
tax that the Company pays. However, the approach resulted in a higher
effective tax rate in 1993 (compared to 1992) because, under the previous
rules, both (a) the excess tax bases deductions relating to the Company's
1989 reorganization and (b) the book/tax temporary differences relating to
the Cross & Trecker acquisition were treated as permanent differences and
resulted in a lower effective tax rate.
The balance sheet impact of adopting SFAS No. 109 was the recognition of a
deferred tax asset of approximately $7.6 million for the remaining excess
tax bases relating to the Company's 1989 reorganization, with the credit
being reflected as a direct increase to Capital in Excess of Par.
At December 31, 1994, the Company has U.S. federal net operating loss
carryforwards totaling approximately $27 million and various state net
operating loss carryforwards. The federal carryforwards expire in 2003
through 2005, while the state carryforwards expire in 1995 through 2010.
The Company also has foreign tax loss carryforwards totaling approximately
$29 million at December 31, 1994, that can be carried forward
indefinitely. The U.S. federal amount and all but $7.1 million of the
foreign total represent acquired net operating loss carryforwards
resulting from the 1991 Cross & Trecker acquisition. The tax benefit of
these loss carryforwards has been, or will be in the case of certain
foreign loss carryforwards, recorded as a reduction to goodwill (i.e.,
reduce "costs in excess of net acquired assets") when initially
recognized.
At the adoption of SFAS No. 109, a valuation allowance was recognized as
an offset to the gross deferred tax assets relating to all of the acquired
and non-acquired loss carryforwards based on management's judgment using
the available information at that time. At December 31, 1993, the
valuation allowance relating to the U.S. federal loss carryforward was
eliminated because, given the operating results of the acquired operations
and other factors, management concluded that a valuation allowance was no
longer needed under SFAS No. 109's "more likely than not" provisions. The
benefit relating to those remaining carryforwards (approximately $13
million), the benefit of the loss carryforward used in 1993 (approximately
$3.6 million U.S.; $1.7 million foreign), and adjustments arising from
differences between the prior year's provision and the loss carryforward
actually used in the Company's 1992 income tax return were recognized as
reductions to goodwill. These items constitute the $18 million decrease in
the deferred tax asset valuation allowance from January 1, 1993 to
December 31, 1993. The decrease in the valuation allowance during 1994
primarily reflects the recognition of approximately $4 million in certain
acquired foreign net operating loss carryforwards as a reduction to
goodwill.
Gross deferred tax assets for all remaining net operating loss
carryforwards, together with various deductible temporary differences
related to certain of the Company's foreign subsidiaries, continue to be
fully offset by a valuation allowance based on management's judgment with
respect to the realizability of those items.
Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1994 and 1993, are as follows:
1994 1993
(In thousands)
Deferred tax liabilities:
Tax over book depreciation $14,618 $11 ,916
LIFO book/tax difference relating to
acquisition 2,225 2,2 51
Percentage of completion accounting 2,654 2,326
Other, net 5,598 5,521
------ ------
Total deferred tax liabilities 25,095 22,014
Gross deferred tax assets:
Environmental accruals 5,226 6,926
Pension, other postretirement, and other
longer term employee benefit
obligations 10,526 12,563
Reserves for Russian contracts - 7,388
Other accrued expenses not currently
deductible and other 21,445 28,036
Net operating loss carryforwards 24,418 22,948
------- -------
Total gross deferred tax assets 61,615 77,861
Valuation allowance for deferred tax
assets (8,097) (11,087)
------- -------
Deferred tax assets, net of valuation
allowance 53,518 66,774
------- -------
Net deferred tax asset $28,423 $44,760
======= =======
The net current and noncurrent components of deferred taxes recognized in
the December 31, 1994 and 1993, balance sheets are as follows:
1994 1993
(In thousands)
Net current asset $ 9,455 $23,770
Net noncurrent asset 18,968 20, 990
------- -------
$28,423 $44,760
======= =======
Details of income before provision for income taxes and extraordinary item
are as follows:
1994 1993 1992
(In thousands)
Domestic $77,525 $58,280 $36,690
Foreign 81 11,747 9,334
------- -------- -------
$77,606 $70, 027 $46,024
======== ======== =======
Details of the provision for income taxes for the years ended December 31,
1994, 1993 and 1992, are as follows:
Deferred
Liability Method Method
1994 1993 1992
(In thousands)
Current:
Federal $ 4,650 $ 3,129 $ 2,554
State 1,627 830 475
Foreign 1,599 286 451
------- -------- -------
7,876 4,245 3,480
Deferred:
Federal 19,908 9,643 (3, 422)
State 2,655 1,815 (78)
Foreign (1,567) 3,150 2,837
------- ------- ------
20,996 14,608 (663)
Effect of use of
acquired loss
carryforwards (1) - 5,343 6,134
Tax benefit related to
exercise of options
and other items
charged to equity 854 2,125 1,541
------ ------- ---------
$29,726 $26,321 $10,492
======= ======= ========
(1) Reduction in current provision (not previously recognized) and
credited to goodwill.
The differences between the provision for income taxes and income taxes
computed using the U.S. federal income tax rate (35% 1994 and 1993, and
34% 1992) for the years ended December 31, 1994, 1993 and 1992, are as
follows:
1994 1993 1992
(In thousands)
Provision at statutory rates $27,162 $24,509 $15,648
State taxes, net of federal
benefit 2,783 1,719 401
Amortization of excess tax basis - - (914)
Tax effect of acquisition
accounting - - (8,489)
Amortization of costs in excess
of net acquired assets 668 823 913
Effect of different foreign tax
rates (513) 1,029 114
Effect on deferred taxes of
change in U.S. federal tax rate - (1,366) -
Addition (reduction) to tax
reserves (520) (820) 2,344
Other 146 427 475
-------- ------- ------
Actual provision for income
taxes $29,726 $26,321 $10,492
======== ======= =======
Significant components of the provision for deferred income taxes for the
year ended December 31, 1992, are as follows (in thousands):
Installation and warranty accruals $(2,386)
Percentage of completion 2,165
Vacation and pension (1,667)
Excess of tax over book
depreciation 1,527
Other (e.g., non-deductible
reserves, inventory) (302)
-------
$ (663)
========
Undistributed earnings of the Company's foreign subsidiaries, which are
not significant at December 31, 1994, are considered to be permanently
invested. Therefore, no deferred taxes (including withholding taxes
payable) have been provided for the remittance of those earnings.
8. Capital Stock
The Company's capital structure consists of the following at December 31:
1994 1993
(In thousands, except
share amounts)
Senior preferred stock, $1.00 par
value, authorized 1,000,000 shares;
none issued and outstanding $ - $ -
Class A preferred stock, $.10 par
value, authorized 3,000,000 shares;
350,000 shares designated as Series
A; none issued and outstanding - -
Common stock, $.10 par value,
authorized 70,000,000 shares;
34,294,404 and 34,254,068 shares
issued and outstanding at December
31, 1994 and 1993, respectively 3,429 3,425
On February 7, 1990, the Board of Directors of the Company declared a
dividend of one-half preferred share purchase right (Right) for each share
of common stock outstanding and provided that one-half Right would be
issued with each share of common stock thereafter issued. Each Right
entitles the registered holder to purchase from the Company, upon the
occurrence of certain events, one one-hundredth of a share of Class A
preferred stock, Series A at an initial exercise price of $45 per one one-
hundredth of a share or, upon the occurrence of certain events, common
stock or other property having a value of twice the exercise price.
1989 Restricted Stock Plan
Under the Company's 1989 restricted stock plan, the Company may grant to
key employees the right to purchase up to an aggregate of 500,000 shares
of common stock (the restricted shares) at $.10 per restricted share, with
such shares not vesting for a period, as determined by the Compensation
Committee of the Board of Directors, of up to ten years from the effective
date of the award (the restricted period). During the restricted period,
the restricted shares may not be sold, transferred or otherwise alienated
by the recipient. The restricted shares currently outstanding have a
restricted period from one to five years from the effective date of the
award.
1989 Stock Option Plan
The Company's 1989 stock option plan authorizes the granting of incentive
and nonqualified stock options to key employees for up to an aggregate of
1,500,000 shares of common stock. Stock options granted under the 1989
stock option plan will have an exercise price of not less than 90% of the
fair market value of the common stock on the date of grant. Options
granted will vest and become exercisable in accordance with the terms and
conditions established by the Compensation Committee of the Board of
Directors and set forth in the applicable option agreement, except that no
options may be exercised later than ten years after the date of its grant.
1991 Independent Director Stock-Based Incentive Plan
During 1991, the Company adopted a stock based incentive plan for members
of the Board of Directors who are not employees of the Company. Under the
1991 plan, on each date on which a non-employee director is elected or re-
elected to serve on the Board of Directors (as the case may be), such non-
employee director automatically receives options to purchase 1,000 shares
of the Company's common stock. The plan authorizes the granting of
nonqualified stock options to non-employee directors for up to an
aggregate of 50,000 shares of common stock. Stock options granted under
the 1991 plan have an exercise price equal to the closing price of a share
of common stock at the date of grant and become exercisable (subject to
immediate vesting in certain cases) upon expiration of the non-employee
director's term as a director.
1993 Stock and Incentive Plan
In 1993, the Company adopted the 1993 stock and incentive plan. The 1993
plan authorizes the granting to key employees of (a) stock options (either
incentive stock options or nonqualified options), (b) stock appreciation
rights, (c) restricted stock, and (d) performance shares and performance
units. In addition, under the 1993 plan, non-employee directors receive
annual restricted stock grants based on an established formula. In total,
the 1993 plan allows for the granting of awards relating to 2,000,000
shares of common stock.
Options granted under the 1993 plan shall have exercise prices no less
than 90% (100% in the case of incentive stock options) of the fair market
value of a share of common stock at the date of grant. The term of the
option is to be determined at the time of the grant but in no event can
exceed ten years. Restricted stock issued under the 1993 plan may contain
restrictions similar to those described above for the 1989 restricted
stock plan, as well as other terms, including vesting based on the
achievement of specified performance criteria. Subject to the terms of the
1993 plan, awards of stock appreciation rights and performance shares and
performance units may have such terms as are specified by the Compensation
Committee of the Board of Directors.
A summary of restricted stock activity, including shares issued to non-
employee directors under the 1993 plan is as follows:
Number of Shares
1994 1993 1992
Restricted stock:
Outstanding at beginning
of year 385,515 385, 200 352,000
Granted 58,840 113,142 56,000
Canceled (29,298) (112,827) (22,800)
Vested (206,742) - -
-------- ------- --------
Outstanding at end of year 208,315 385,515 385,200
======== ======== ========
A summary of option activity under the above-described stock option and
incentive plans is as follows:
Number of Shares
1994 1993 1992
Options:
Outstanding at beginning of
year at $7.00 to $28.00 584,370 1,162,778 1,063,000
Granted at $9.625 to $28.00 229,750 70,000 427,778
Canceled (67,6 56) (295,943) (68,400)
Exercised at $7.00 to
$19.875 (48,788) (35 2,465) (259,600)
-------- -------- ---------
Outstanding at end of year
at $7.00 to $28.00 697,676 584,370 1,162,778
======== ======= ==========
All options granted through December 31, 1994, are nonqualified stock
options. There were 209,299, 17,143 and 2,000 options exercisable at
December 31, 1994, 1993 and 1992, respectively.
A total of approximately 2,950,000 shares of the Company's authorized but
unissued common stock are reserved for potential future issuance under the
Company's various stock option and incentive plans.
9. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates fair value.
Foreign Currency Exchange Contracts
The Company enters into forward foreign exchange contracts mainly to fix
the price of certain loans to its foreign subsidiaries denominated in
European currencies. The primary purpose of the Company's foreign currency
activities is to protect the Company from the risk that the eventual
dollar cash flows resulting from the repayment of such loans will be
adversely affected by changes in exchange rates. At December 31, 1994, the
Company had forward exchange contracts that require it to convert these
foreign currencies, at various rates and dates through December 1995, into
approximately $50.0 million, DM 3.0 million, and [L]1.4 million. At
December 31, 1993, the Company's forward exchange contracts required it to
convert foreign currencies at various rates through November 1994 into
approximately $38.7 million and [L]7.0 million.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on the foreign exchange contracts; however, the Company
does not anticipate nonperformance by any of these counterparties. The
amount of such exposure is generally any unrealized gains in such
contracts.
The fair values of the Company's forward foreign currency exchange
contracts are estimated based on quoted market prices of comparable
contracts.
The carrying amounts and fair values (i.e., unrealized gains/(losses) in
the case of forward exchange contracts) of the Company's financial
instruments at December 31 are as follows:
1994 1993
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In thousands)
Cash and
cash equivalents $24,072 $24,072 $53,877 $53,877
Foreign currency
exchange contracts - (759) - (53)
10. Foreign Operations
Information relating to the Company's foreign operations, consisting
principally of operations in the United Kingdom and continental Europe, at
December 31, 1994, 1993 and 1992, and for each of the three years then
ended is as follows:
Sales
-------------------------------------- Operating
Assets Gross Intergeographic(1) Net Income
(In thousands)
1994 $185,382 $148,625 $20,493 $128,132 $ 1,832
======= ======== ======== ======== ========
1993 $145,040 $104,471 $ 6,282 $ 98,189 $11,837
========= ======== ======== ======== ========
1992 $137,221 $127,005 $6,855 $120,150 $10,172
========= ======== ======== ======== ========
(1) Represents sales from the Company's foreign subsidiaries to the
Company in the United States, which are at prices approximating
those charged to unaffiliated customers.
In 1994, 1993 and 1992, the foreign subsidiaries had sales to
nonaffiliated U.S. customers of $1,640,000, $107,000 and $1,052,000,
respectively.
Export sales to nonaffiliated customers were $23,647,000, $17,519,000 and
$23,905,000 in 1994, 1993 and 1992, respectively.
<PAGE>
Supplementary Data
(Quarterly Financial Data - Unaudited)
1994 Quarter Ended
April 3 July 3 October 2 December 31(1)
(In thousands, except per share amounts)
Net sales $123,030 $144,805 $166,100 $185,536
Gross profit (before
depreciation and
amortization) $28,191 $30,937 $34,624 $34,322
Net income $6,870 $7,230 $9,809 $23,971
Net income per common
share $.20 $.21 $.29 $.70
(1) Includes $22.1 million of pre-tax income related to receipt on
Russian contract (see Note 2).
1993 Quarter Ended
April 4 July 4 October 3 December 31(2)
(In thousands, except per share amounts)
Net sales $140,251 $135,831 $122,003 $119,377
Gross profit (before
depreciation and
amortization) $41,553 $41,866 $34,791 $32,808
Net income $10,234 $11,482 $11,088 $10,902
Net income per common
share:
Primary $.33 $.34 $.33 $.32
Fully diluted $.32 $.34 $.33 $.32
(2) Includes $14.7 million of net pre-tax income related to changes
in certain reserve estimates, net of a restructuring charge (see
Note 2).
<PAGE>
Auditors' Report
The Board of Directors and Shareholders
Giddings & Lewis, Inc.
We have audited the accompanying consolidated balance sheets of Giddings &
Lewis, Inc. as of December 31, 1994 and 1993, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. 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 Giddings
& Lewis, Inc. at December 31, 1994 and 1993, and the consolidated results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 7 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income
taxes.
ERNST & YOUNG
Milwaukee, Wisconsin
January 27, 1995
Exhibit 21
SUBSIDIARIES OF GIDDINGS & LEWIS, INC.
Jurisdiction
Name of Percent Ownership
Incorporation Direct Indirect
Giddings & Lewis, Ltd. United Kingdom 100%
Giddings & Lewis Foreign Sales U.S. Virgin 100%
Corp. Islands
Basic Electronics Mfg. Corp. Illinois 100%
Cross & Trecker Corporation Michigan 100%
The Cross Company Michigan 100%1
Kearney & Trecker Corporation Wisconsin 100%1
The Warner & Swasey Company Michigan 100%1
Cross & Trecker Credit Corporation Michigan 100%1
Giddings & Lewis A.G. Switzerland 99.9%1
Giddings & Lewis Canada, Ltd. Canada 100%2
Trexports, Inc. Delaware 100%3
Kirloskar Warner & Swasey Limited India 38%4
Machine Remarketing Corporation Michigan 100%5
Giddings & Lewis GmbH Germany 100%6
________________________________
1 Direct percent ownership by Cross & Trecker Corporation.
2 Direct percent ownership by The Cross Company.
3 Direct percent ownership by Kearney & Trecker Corporation.
4 Direct percent ownership by The Warner & Swasey Company.
5 Direct percent ownership by Cross & Trecker Credit Corporation.
6 99.9% direct ownership by Cross & Trecker Corporation and 0.1% direct
ownership by The Cross Company.
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Giddings & Lewis, Inc. of our report dated January 27, 1995,
included in the 1994 Annual Report to Shareholders of Giddings & Lewis,
Inc.
Our audits also included the financial statement schedule of Giddings &
Lewis, 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 (Forms S-8 No. 33-64936, Form S-8 No. 33-31950, Form S-8
No. 33-31951, Form S-8 No. 33-40542, Form S-8 No. 33-44325, and Form S-8
No. 33-44518) pertaining to the Giddings & Lewis, Inc. 1993 Stock and
Incentive Plan, the Giddings & Lewis, Inc. 1989 Restricted Stock Plan, the
Giddings & Lewis, Inc. 1989 Stock Option Plan, the Giddings & Lewis, Inc.
Savings Plan, The Cross & Trecker Retirement Savings Plan, and The Kearney
& Trecker Retirement Savings Plan of our report dated January 27, 1995,
with respect to the consolidated financial statements incorporated herein
by reference, and our report included in the preceding paragraph with
respect to the financial statement schedule included in this Annual Report
(Form 10-K) of Giddings & Lewis, Inc. for the year ended December 31,
1994.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GIDDINGS &
LEWIS' CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY RERERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 24,072
<SECURITIES> 0
<RECEIVABLES> 344,803
<ALLOWANCES> 922
<INVENTORY> 74,823
<CURRENT-ASSETS> 463,154
<PP&E> 211,969
<DEPRECIATION> 104,805
<TOTAL-ASSETS> 687,226
<CURRENT-LIABILITIES> 155,474
<BONDS> 0
<COMMON> 3,429
0
0
<OTHER-SE> 481,869
<TOTAL-LIABILITY-AND-EQUITY> 687,226
<SALES> 619,471
<TOTAL-REVENUES> 619,471
<CGS> 491,397
<TOTAL-COSTS> 491,397
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,025)
<INCOME-PRETAX> 77,606
<INCOME-TAX> 29,726
<INCOME-CONTINUING> 47,880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,880
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.40
</TABLE>
