<PAGE>
Exhibit index
is on Page 10
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- ---
Act of 1934 For the quarterly period ended June 30, 1995, 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 No. 1-5375
TECHNITROL, INC.
(Exact name of registrant as specified in Charter)
PENNSYLVANIA 23-1292472
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1210 Northbrook Drive, Suite 385
Trevose, Pennsylvania 19053
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: 215-355-2900
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 the filing
requirements for at least the past 90 days. YES X NO ___
---
Common Stock - Shares Outstanding as of June 30, 1995: 6,047,742
Page 1 of 11
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and December 31, 1994
(in thousands of dollars)
<TABLE>
<CAPTION>
June 30, Dec. 31,
-------- -------
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,041 $ 8,716
Receivables:
Trade 23,762 22,614
Other 424 139
Inventories:
Finished goods 5,819 5,471
Work in process 9,227 8,420
Raw materials and supplies 10,140 7,823
---------- ----------
Total inventories 25,186 21,714
Prepaid expenses 1,151 851
---------- ----------
Total current assets 55,564 54,034
---------- ----------
Property, plant and equipment 57,696 55,180
Less accumulated depreciation 33,001 30,809
---------- ----------
Net property, plant and equipment 24,695 24,371
Investment in common stock warrants
of Pulse Engineering (see Note 5) 4,769 --
Deferred income taxes 2,523 2,409
Other assets 3,619 3,941
---------- ----------
$ 91,170 $ 84,755
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 22 $ 22
Short-term debt -- 756
Accounts payable 6,202 5,841
Income taxes payable 1,570 1,916
Dividends payable 605 572
Accrued payroll 2,704 3,118
Accrued pension expense 4,913 4,589
Other accrued expenses 8,225 7,060
---------- ----------
Total current liabilities 24,241 23,874
---------- ----------
Long-term debt, excluding current installments 18,113 15,124
Shareholders' equity:
Common stock 1,118 1,118
Additional paid-in capital 4,730 4,329
Retained earnings 48,454 45,923
---------- ----------
54,302 51,370
Less: Cost of treasury stock (4,531) (4,573)
Unearned compensation under stock award plan (834) (560)
Cumulative translation adjustment (121) (480)
---------- ----------
Net shareholders' equity 48,816 45,757
---------- ----------
$ 91,170 $ 84,755
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 2 of 11
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars)
<TABLE>
<CAPTION>
Three Months Six Months
------------ ----------
Ended June 30 Ended June 30
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
1. Net sales $ 39,394 $ 37,816 $ 79,437 $ 72,776
2. Costs and expenses
a) Cost of goods sold 27,588 27,492 57,090 53,009
b) Selling, general and administrative
expenses 8,206 7,284 15,981 14,218
------ ------ ------ ------
Total costs and expenses 35,794 34,776 73,071 67,227
------ ------ ------ ------
3. Operating profit 3,600 3,040 6,366 5,549
4. Other income (expense)
Interest (313) (201) (548) (471)
Other -- 52 (96) 13
------ ------ ------ ------
Total other income (expense) (313) (149) (644) (458)
------ ------ ------ ------
5. Earnings before taxes 3,287 2,891 5,722 5,091
6. Income taxes 1,267 1,149 2,010 1,979
------ ------ ------ ------
7. Net earnings $ 2,020 $ 1,742 $ 3,712 $ 3,112
====== ====== ====== ======
8. Weighted average common shares
outstanding 6,042,000 6,015,000 6,042,000 6,015,000
9. Earnings per share $ .33 $ .29 $ .61 $ .52
10. Dividends declared per share $ .10 $ .093 $ .195 $ .187
</TABLE>
Dollar amounts are in thousands except for earnings per share and dividends per
share.
See accompanying notes to consolidated financial statements.
3 of 11
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
June 30, June 30,
-------- --------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,712 $ 3,112
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 2,722 2,609
Gain on disposal of equipment 50 --
Changes in assets and liabilities net of effect of
acquisition:
(Decrease) in income taxes payable (295) (229)
Increase in accounts payable and accrued expenses 1,588 5,255
(Increase) in accounts receivable (1,034) (4,977)
(Increase) in inventories (3,355) (4,421)
Other, net (551) (417)
---------- ----------
Net cash provided by operating activities 2,837 932
---------- ----------
Cash flows from investing activities:
Acquisition of capital stock of the Fil-Mag Group, net of
cash acquired -- (8,805)
Acquisition of common stock warrants of Pulse
Engineering (4,769) --
Capital expenditures, exclusive of acquired businesses (2,920) (1,831)
Proceeds from sale of property, plant and equipment 17 --
---------- ----------
Net cash used in investing activities (7,672) (10,636)
---------- ----------
Cash flows from financing activities:
Dividends paid (1,179) (1,121)
Repayment of Fil-Mag Group funded indebtedness -- (1,014)
Proceeds of long-term debt 5,000 10,000
Principal payments of long-term debt (2,011) (12)
Net repayment of short-term debt (769) (1,173)
---------- ----------
Net cash provided (used) by financing activities 1,041 6,680
---------- ----------
Net effect of exchange rate changes on cash 119 79
Net (decrease) in cash and cash equivalents (3,675) (2,945)
Cash and cash equivalents at beginning of year 8,716 7,721
---------- ----------
Cash and cash equivalents at June 30 $ 5,041 $ 4,776
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
4 of 11
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Accounting Policies
-------------------
For a complete description of the accounting policies of Technitrol, Inc.
and its consolidated subsidiaries ("the Company"), refer to Note 1 to the
financial statements included in the Company's Form 10-K filed for the year
ended December 31, 1994.
Reclassifications
Certain amounts in the 1994 financial statements have been reclassified to
conform with the current year's presentation.
(2) Acquisitions
------------
On January 17, 1994, the Company, through its wholly-owned subsidiary,
Technitrol International, Inc., a Delaware corporation, acquired from FEE
Technology, S.A. all of the issued and outstanding capital stock of FEE Fil-Mag
Taiwan Corporation ("FFT"), FEE Fil-Mag Singapore Pte. Corporation ("FFS") and
Fil-Mag, Inc. ("FMI"). FFT, FFS and FMI are referred to below as the "Fil-Mag
Group". The Fil-Mag Group is a supplier of magnetic components to domestic and
international manufacturers of PCs, network interface cards, network controllers
and other devices that are connected to data communications networks such as
Token Ring and Ethernet. The Fil-Mag Group conducts manufacturing operations in
its plants in Taiwan and the Philippines, engineering activities at its San
Diego, California location and sales operations through offices in France,
Singapore and San Diego. The Company intends to continue the businesses of the
Fil-Mag Group at their current locations.
The purchase price was $9,082,000 (net of expenses). In addition, the
Company caused FMI to repay to FEE Technology, S.A. approximately $1 million of
indebtedness. FFT was indebted to local banks in the amount of approximately
$3.3 million, all of which has been retired since the acquisition. The purchase
price and the $1 million debt repayment were financed by borrowing $10 million
under a temporary acquisition line of credit and cash on-hand of approximately
$400,000.
The purchase price was arrived at pursuant to arms-length negotiations
taking into account all pertinent factors including, but not limited to, the
nature, monetary and strategic value of the assets being acquired, the
businesses and business prospects of each member of the Fil-Mag Group and the
synergies of the businesses of the Fil-Mag Group with the operations of the
Components Division of the Company. The assets acquired had a fair value of
approximately $18.0 million, including current assets of $9.0 million and
approximately $2.5 million of goodwill associated with the acquisition.
Liabilities assumed totaled $8.6 million.
Subsequent to the acquisition, eight key employees of the Fil-Mag Group
entered into a covenant against competition with the Company in exchange for
which the Fil-Mag Group paid them, in the aggregate, $1 million during the
twelve months subsequent to the acquisition. The $1 million was financed by
cash on-hand and is being amortized on a straight-line basis over the life of
the covenant.
The activity of the Fil-Mag Group for the period from January 1 to January
17, 1994, was not material to the consolidated results of the Company.
Page 5 of 11
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(3) Shareholders' Equity
--------------------
On August 3, 1994, the Company's Board of Directors approved a three-for-
one split of the Company's common stock in the form of a 200% common stock
dividend for shareholders of record as of August 18, 1994. A total of 5,962,640
shares were issued in connection with the split. The stated par value of each
share was not changed from $.125. A total of $745,000 was reclassified from the
Company's retained earnings account to the Company's common stock account. All
share and per share amounts for 1994 have been restated to retroactively reflect
the stock split.
(4) Supplemental Disclosure of Non-cash Transactions
------------------------------------------------
During the six months ending June 30, 1995 and 1994, the Company issued to
employees stock pursuant to the Company's Restricted Stock Plan having a fair
value of $406,000 and $469,000, respectively.
(5) Merger Agreement with Pulse Engineering, Inc.
--------------------------------------------
On May 23, 1995, the Company and Pulse Engineering, Inc. ("Pulse") jointly
announced that their respective Boards of Directors had approved a definitive
merger agreement. Under the agreement, the Company will acquire all the issued
and outstanding Pulse shares for approximately $24.0 million in cash and
approximately 1,650,000 shares of the Company's stock and Pulse will become a
wholly-owned subsidiary of the Company. Pulse stockholders can elect to receive
all cash or all common stock of the Company, subject to the limitation that no
more than 55% and no less than 50% of the Pulse shares will be converted to the
Company's common stock. A stockholder receiving an equal allocation of cash and
the Company's common stock will receive $4.25 in cash and .2906 shares of the
Company's common stock for each Pulse share. At closing, the exchange ratio
will be adjusted upward if the average closing price for the Company's stock is
below $13-3/4 (equal to $8.00 per Pulse share) and will be adjusted downward if
the average closing price is above $16-3/8 (equal to $9.52 per Pulse share),
both calculated on the closing price of the Company's common stock during a ten
trading day period preceding closing. The purchase price, if a Pulse
stockholder receives 50% cash and 50% Technitrol common stock, will be no less
than $8.25 nor more than $9.01 per Pulse share.
The Company's and Pulse's Boards of Directors will recommend to their
respective shareholders that they approve the merger at special meetings of the
shareholders to be called in September, 1995. The merger is subject to various
conditions which are normal and customary in transactions of this type including
receipt of required regulatory approvals.
The Company also acquired a warrant from an unrelated third party to
purchase 655,489 shares of Pulse common stock at a warrant exercise price of
$1.00 per share. The purchase price for the warrant was approximately
$4,769,000. Based upon Pulse's most recent public filings, the warrant
represents beneficial ownership of approximately 9.1% of the issued and
outstanding Pulse common stock.
Pulse, headquartered in San Diego, California, with operations in Hong
Kong, the People's Republic of China and Ireland, designs, manufactures and
markets electronic components and modules primarily for manufacturers of local
area networks and telecommunications systems.
Page 6 of 11
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The results for the second quarter of 1995 have been prepared by
Technitrol's management without audit or participation by its independent
auditors. In the opinion of management, the financial statements fairly present
the results of Technitrol's operations for the period presented and the
consolidated balance sheet at June 30, 1995. To the best knowledge and belief of
Technitrol, all normal recurring accruals and adjustments have been made to
properly reflect income and expenses attributable to this period.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents totalled $5.0 million at June 30, 1995, compared
to $8.7 million at December 31, 1994. Working capital was $31.3 million,
compared to $30.2 million at the end of last year.
Operating activities provided $2.8 million in cash for the half year.
Contributing to the positive cash flow were net earnings of $3.7 million and
depreciation and amortization of $2.7 million. In addition, accounts payable
plus accrued expenses increased $1.6 million. Offsetting that favorable cash
impact was a $1 million increase in accounts receivable and a $3.4 million
increase in inventory. In general, sales increases caused the rise in payables
and receivables. The inventory increase was primarily within the Company's
Metallurgical Products Segment which has experienced on-going customer demand
for "Just In Time" deliveries.
Cash used in investing activities was $7.7 million. Capital expenditures
made during the half totalled $2.9 million. Common stock warrants regarding
Pulse Engineering, Inc. were purchased for $4.8 million during the second
quarter. (See Note 5 of Notes to Consolidated Financial Statements.)
Cash provided by financing activities was $1 million for the first six
months of 1995. Debt proceeds net of repayments were $2.2 million and were used
primarily for the purchase of the Pulse stock warrants. Separately, dividends
of $1.2 million were paid.
In connection with its financing activities relating to the cash portion of
the pending Pulse merger, on June 29, 1995, Technitrol, Inc. entered into a
commitment with three banks. The banks committed to provide up to $50 million
of credit to the Company on an unsecured basis of which $20 million would be in
the form of a five year term loan and up to $30 million would be in the form of
a three year revolving line of credit. Closing of the loan transaction pursuant
to the commitment is subject to fulfillment of various conditions which are
normal and customary in transactions of this type. Proceeds of the loan will be
used to refinance existing indebtedness (approximately $16 million), pay the
cash portion of the merger consideration and related transaction expenses
(approximately $19 million) with the balance available to provide working
capital and funds for future acquisitions, if required. The Company believes
that, when closed, the funds available under the line of credit will be
sufficient for its foreseeable cash needs.
Page 7 of 11
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS (continued)
- -------------
Liquidity and Capital Resources (continued)
- -------------------------------
Recent balance sheet composition has been:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Cash & cash equivalents 6% 10% 6%
Other current assets 55% 53% 57%
Plant, property & equipment 27% 29% 30%
Other assets 12% 8% 7%
----- ----- -----
Total 100% 100% 100%
===== ===== =====
Current liabilities 27% 28% 30%
Long-term debt 20% 18% 18%
Shareholders' equity 53% 54% 52%
----- ----- -----
Total 100% 100% 100%
===== ===== =====
</TABLE>
Results of Operations
- ---------------------
Second quarter 1995 sales totaled $39.4 million, an increase of 4.2% from
the $37.8 million sold in the same quarter of 1994. The quarterly increase was
attributable to sales increases realized by both the Electronic Products Segment
and End User/Finished Products Segment which exceeded a sales decrease within
the Metallurgical Products Segment.
The backlog at June 30, 1995 was $29.7 million, compared to $32.2 million
at March 31, 1995 and $28.7 million at December 31, 1994. Second quarter
bookings approximated sales of the Electronic Products Segment, while quarterly
sales slightly exceeded bookings of the End User/Finished Products Segment.
Second quarter sales exceeded bookings of the Metallurgical Products Segment,
reflecting the adverse volume impact of certain recent domestic economic
activity on a portion of the product portfolio of Advanced Metallurgy, Inc.
(AMI).
The increased quarterly sales of the Electronic Products Segment reflected
an increase in Fil-Mag Group sales exceeding a decrease in the sales of the
Company's Components Division. The latter sales decrease reflected continued
softening in the domestic market for the Division's products. Quarterly gross
profits for this Segment as a whole increased from prior year levels, as did
operating profits. After tax earnings of the Segment benefited from the
favorable offshore effective tax rates of entities within the Fil-Mag Group
relative to that of the Components Division, which both manufactures and sells
domestically.
The Metallurgical Products Segment's decrease in quarterly sales from the
comparable prior year period was primarily due to the decline in shipments of
AMI. While sales and gross profit increased at Chace Precision Metals, quarterly
gross profits and operating profits of the Segment as a whole decreased, due to
the sales decrease experienced by AMI.
End User/Finished Products Segment quarterly sales increased primarily as a
result of Lloyd Instruments' current period shipments exceeding the second
quarter of 1994. A portion of that increase was due to Lloyd's increased sales
in Germany attributable to the recent acquisition of the Erichsen product line.
Profits for this Segment as a whole increased from the comparable prior year
period, reflecting the benefit of Lloyd's overall sales and gross profit
improvements.
Page 8 of 11
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS (continued)
- -------------
Results of Operations (continued)
- ---------------------
Total selling, general and administrative expenses of $8,206,000 increased
slightly as a percentage of sales. Those expenses included non-recurring
recruiting costs and incremental salary and benefit costs associated with
executive hiring at the corporate level.
Net interest expense increased to $313,000 for the quarter, up from that of
the comparable prior year period. The increase reflected interest paid on $5
million of incremental borrowing during the quarter, used to purchase warrants
of Pulse Engineering, Inc. (See Note 5 of Notes to Consolidated Financial
Statements.) In addition, interest rates on the Company's borrowings were
generally higher in the second quarter of 1995 than in the comparable prior year
period.
The effective tax rates in the second quarter were 38.5% in 1995 and 39.7%
in 1994. The decrease was caused by more taxable income earned by the Company's
offshore operating units, particularly Fil-Mag, which generally incur lower tax
rates than those experienced by Technitrol's domestic operating units.
Net earnings of $2,020,000, or $.33 per share, were realized in the current
quarter, as compared with $1,742,000, or $.29 per share, earned during the same
period in 1994.
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1 LEGAL PROCEEDINGS NONE
ITEM 2 CHANGES IN SECURITIES NONE
ITEM 3 DEFAULTS UPON SENIOR SECURITIES NONE
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE
The regular annual meeting of shareholders was held on May 23, 1995.
Messrs. Roy E. Hock, Edward M. Mazze and Stanley E. Basara were
elected to a three-year term as directors of the Company. KPMG Peat
Marwick LLP was selected as the Company's independent public
accountants for the year ended December 31, 1995. The results of the
votes were as follows:
For Withhold Authority
--- ------------------
Roy E. Hock 4,374,515 8,060
Edward Mazze 4,375,775 6,800
Stanley E. Basara 4,374,575 8,000
For Against Abstain
--- ------- -------
KPMG Peat Marwick LLP 4,245,175 132,530 4,870
ITEM 5 OTHER INFORMATION NONE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits NONE
(b) Reports
A report on Form 8-K dated May 22, 1995 was filed on or about June
19, 1995 with respect to information set forth above under "Part I -
Item 1, Notes to Consolidated Financial Statements, Merger Agreement
with Pulse Engineering, Inc."
Page 9 of 11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
DOCUMENT
- --------
<S> <C>
3. (a) Articles of Incorporation Incorporated by reference to Form 10-Q
for quarter ended September 30, 1985.
(b) Bylaws Incorporated by reference to Form 10-Q
for the quarter ended September 30, 1990.
4. Instruments defining rights of Incorporated by reference to Form 10-K
security holders for the year ended December 31, 1982.
21. Subsidiaries of Registrant Attached hereto
27. Financial Data Schedule Electronic Filing Only
</TABLE>
- --------------------------------------------------------------------------------
Page 10 of 11
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNITROL, INC.
-------------------------------------------
(Registrant)
August 11, 1995 /s/Albert Thorp, III
- ------------------------------- -------------------------------------------
(Date) Albert Thorp, III
Vice President - Finance, Treasurer and
Chief Financial Officer
August 11, 1995 /s/Drew A. Moyer
- ------------------------------- -------------------------------------------
(Date) Drew A. Moyer
Corporate Controller, Assistant Treasurer
and Principal Accounting Officer
Page 11 of 11
<PAGE>
EXHIBIT (21) SUBSIDIARIES OF THE REGISTRANT
Technitrol, Inc., which has no parent, has the following subsidiaries:
<TABLE>
<CAPTION>
Name State of Incorporation Percent Owned
- ---- ---------------------- -------------
<S> <C> <C>
John Chatillon & Sons, Inc. New York 100%
Advanced Metallurgy, Inc. Pennsylvania 100%
Technitrol International, Inc. Delaware 100%
Chace Precision Metals, Inc. Delaware 100%
Lloyd Instruments, Ltd. United Kingdom 100%
Fil-Mag, Inc. California 100%
Fil-Mag Taiwan Corporation Taiwan 100%
Fil-Mag Philippines Corporation Philippines 100%
Technitrol Investments, Inc. Delaware 100%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 5,041
<SECURITIES> 0
<RECEIVABLES> 23,762
<ALLOWANCES> 0
<INVENTORY> 25,186
<CURRENT-ASSETS> 55,564
<PP&E> 57,696
<DEPRECIATION> 33,001
<TOTAL-ASSETS> 91,170
<CURRENT-LIABILITIES> 24,241
<BONDS> 18,113
<COMMON> 1,118
0
0
<OTHER-SE> 47,698
<TOTAL-LIABILITY-AND-EQUITY> 91,170
<SALES> 79,437
<TOTAL-REVENUES> 79,437
<CGS> 57,090
<TOTAL-COSTS> 73,071
<OTHER-EXPENSES> 644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 548
<INCOME-PRETAX> 5,722
<INCOME-TAX> 2,010
<INCOME-CONTINUING> 3,712
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,712
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
