Exhibit index
is on Page 11
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 March 31, 1996, 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 (Zip Code)
offices)
Registrant's telephone number, 215-355-2900
including area code:
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 March 31, 1996: 7,953,846
Page 1 of 13
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
In thousands of dollars, except for share data
March 31, Dec. 31,
Assets 1996 1995
--------- ----------
Current Assets:
Cash and cash equivalents $ 18,007 $ 13,894
Receivables:
Trade 34,676 33,431
Other 269 308
Inventories 32,265 32,962
Prepaid expenses and other current assets 2,455 2,019
-------- ---------
Total current assets 87,672 82,614
Property, plant and equipment 81,104 81,063
Less accumulated depreciation 36,436 35,935
-------- ---------
Net property, plant and equipment 44,668 45,128
Deferred income taxes 4,435 4,132
Excess of cost over net assets acquired 10,713 10,957
Other assets 1,304 2,109
-------- --------
$148,792 $144,940
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 2,021 $ 2,023
Accounts payable 8,125 8,359
Accrued expenses 34,491 28,990
-------- --------
Total current liabilities 44,637 39,372
Long-term liabilities:
Long-term debt, excluding current
installments 8,098 15,102
Other long-term liabilities 5,596 5,705
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock 1,354 1,342
Additional paid-in capital 38,484 36,907
Retained earnings 57,188 52,517
-------- --------
97,026 90,766
Less: Cost of treasury stock (4,502) (4,535)
Unearned compensation under stock award plan (1,189) (697)
Cumulative translation adjustment (874) (773)
-------- --------
Total shareholders' equity 90,461 84,761
-------- --------
$148,792 $144,940
======== ========
See accompanying Notes to Consolidated Financial Statements.
Page 2 of 13
TECHNITROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars)
Three Months
Ended March 31
1996 1995
-------- --------
1. Net sales $ 62,852 $ 40,043
2. Costs and expenses applicable to
sales
a) Cost of goods sold 41,784 29,059
b) Selling, general and
administrative expenses 13,370 8,218
-------- --------
Total costs and expenses
applicable to sales 55,154 37,277
3. Other operating income
a) Gain on the sale of the
Products Division 1,471 --
-------- --------
4. Operating profit 9,169 2,766
5. Other income (expense)
Interest (123) (235)
Other 18 (96)
-------- --------
Total other income (expense) (105) (331)
6. Earnings before taxes 9,064 2,435
7. Income taxes 3,598 743
-------- --------
8. Net earnings $ 5,466 $ 1,692
======= =======
9. Weighted average common and
equivalent shares outstanding 7,984 6,043
10 Earnings per share $ .68 $ .28
11 Dividends declared per share $ .10 $ .095
Amounts are in thousands except for earnings per share and dividends per share.
See accompanying Notes to Consolidated Financial Statements.
Page 3 of 13
TECHNITROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1995
(In thousands of dollars)
March 31, March 31,
1996 1995
------- --------
Cash flows from operating activities:
Net earnings $ 5,466 $ 1,692
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,624 1,382
Gain on sale of Product Division assets (1,471) --
Changes in assets and liabilities net of
effect of sale of Products
Division assets:
Increase in accounts payable and
accrued expenses 4,451 1,952
(Increase) in accounts receivable (1,317) (2,055)
(Increase) in inventories (394) (1,766)
Other, net 780 (184)
-------- -------
Net cash provided by operating activities 10,139 1,021
-------- -------
Cash flows from investing activities:
Proceeds from the sale of
Products Division assets 3,671 --
Capital expenditures (2,088) (1,488)
Proceeds from sale of property,
plant and equipment 3 6
-------- -------
Net cash provided by (used in)
investing activities 1,586 (1,482)
-------- -------
Cash flows from financing activities:
Dividends paid (792) (572)
Principal payments of long-term debt (7,006) (2,005)
Net repayment of short-term debt -- (439)
Proceeds from exercise of stock options 237 --
-------- -------
Net cash used in financing activities (7,561) (3,016)
Net effect of exchange rate changes on cash (51) 161
Net increase (decrease) in cash and
cash equivalents 4,113 (3,316)
Cash and cash equivalents at beginning of year 13,894 8,716
-------- -------
Cash and cash equivalents at March 31 $ 18,007 $ 5,400
-------- -------
See accompanying Notes to Consolidated Financial Statements.
Page 4 of 13
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 of Notes to Consolidated Financial Statements
included in the Company's Form 10-K filed for the year ended
December 31, 1995.
Reclassifications
Certain amounts in the 1995 financial statements have been
reclassified to conform with the current year's presentation.
(2) Acquisitions and Divestitures
On September 29, 1995, the Company completed the acquisition of
Pulse Engineering, Inc. ("Pulse"), pursuant to an Agreement and Plan
of Merger, dated May 23, 1995. As a result of the merger, Pulse
became a wholly-owned subsidiary of the Company. Pulse,
headquartered in San Diego, California, and 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.
The total purchase price approximated $61.5 million and
consisted of cash due to the former Pulse stockholders, stock issued
to the former Pulse stockholders, stock options assumed, and related
acquisition costs. The fair value of the assets acquired and
liabilities assumed approximated $66.5 million and $14.0 million,
respectively. The excess of cost over net assets acquired
approximated $9.0 million and is being amortized over 15 years. 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, business prospects of Pulse and the synergies of Pulse
with the existing operations of the Electronic Components Segment of
the Company.
Approximately 1,785,000 shares of Technitrol common stock at a
fair market value of $16.375 per share were issued to former holders
of Pulse common stock. The cash portion of the purchase price,
including cash paid to the former stockholders of Pulse and related
acquisition costs, was approximately $27.6 million. In addition,
all outstanding options to purchase Pulse common stock were assumed
by the Company. Approximately 269,000 shares of Technitrol common
stock became issuable upon exercise of such options. Except for
approximately 33,000 options which were not vested at the
acquisition date, all assumed options became immediately exercisable
at prices ranging from $1.73 to $15.61. The options have various
expiration dates, the latest of which is in April 2001.
Page 5 of 13
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Acquisitions and Divestitures (continued)
The acquisition has been accounted for by the purchase method of
accounting. Had Pulse been acquired on January 1, 1995, unaudited
consolidated pro forma results of operations would have been (in
thousands, except for earnings per share):
Three Months Ended
March 31, 1995
------------------
Sales $62,173
Net earnings $2,778
Earnings per share $0.35
This unaudited information is provided for comparative purposes
only. It does not purport to be indicative of the results that
actually would have occurred if the acquisition had been consummated
on the date indicated or which may be obtained in the future. The
pro forma earnings per share amounts include the effect of shares
issued and stock options assumed in connection with the merger.
On February 27, 1996, the Company sold certain assets of the
Products Division to an unrelated party. As a result of the sale,
the Company will discontinue its production and marketing of
document counters and dispensers, the sales of which approximated
$4.9 million in 1995. The consideration received approximated $3.7
million and the pre-tax gain of approximately $1.5 million that was
realized on the sale (after recognition of related costs and
expenses) is included in operating profit for the period ended
March 31, 1996.
(3) Inventories
Inventories consist of the following (in thousands):
March 31, December 31,
1996 1995
---- ----
Finished goods $ 8,699 $12,926
Work in process 8,621 8,888
Raw materials 14,945 11,148
------- -------
$32,265 $32,962
======= =======
(4) Supplemental Disclosure of Non-cash Transactions
During the nine months ending March 31, 1996 and 1995, the
Company issued to employees stock pursuant to the Company's
Restricted Stock Plan having a fair value of $555,000 and $406,000,
respectively.
Page 6 of 13
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The results for the three months ended March 31, 1996 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 periods presented and the consolidated balance
sheet at March 31, 1996. 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
Total working capital was $43.0 million at the end of the
quarter and was essentially unchanged from the $43.2 million at
December 31, 1995. However, a greater portion of the working
capital at March 31, 1996 consisted of cash and cash equivalents as
these funds on-hand increased from $13.9 million at December 31,
1995 to $18.0 million at the end of the first quarter.
During the quarter, cash provided by operations was $10.1
million. The cash flow from operations included earnings of $5.4
million and depreciation and amortization of $2.6 million. Plans
implemented by the Metallurgical Segment's management to reduce
overhead and lower break even points have had a positive impact on
cash flow from operations. Significant cash was generated by an
increase in accounts payable and accrued expenses during the
quarter. This increase of approximately $4.5 million included
increases in accounts payable related to higher raw material
inventory levels and the timing of vendor payments. Increased
income taxes payable and a higher level of general accrued expenses,
including those associated with Pulse, also contributed to the
higher level of accrued expenses at the end of the quarter.
Exclusive of the assets of the Products Division which were sold
during the quarter, accounts receivable and inventories increased by
$1.3 million and $0.4 million, respectively, reflecting the record
level of sales and the increasing backlog during the quarter.
Finished goods inventories decreased since the end of 1995 while raw
material inventories increased. The higher level of finished goods
at December 31, 1995 included inventories of the Electronic
Components Segment in the Far East which were increasing in
anticipation of the Chinese New Year Holiday in February 1996.
Finished goods inventories were used to maintain customer shipments
while certain production facilities were closed during the holiday
period. Raw material inventories increased during the quarter as
the Company's backlog increased and planned production activities
reflected the higher sales level, especially in the Electronic
Components Segment.
Cash provided by investing activities was $1.6 million during
the quarter. The cash received from the sale of the Company's
Products Division approximated $3.7 million, exceeding consolidated
capital expenditures of $2.1 million during the quarter. The
Products Division sale occurred on February 27, 1996 and a portion
of the funds received was used to repay debt, as noted below.
Debt repayments totaled $7.0 million during the quarter,
comprising the majority of the total cash of $7.6 million used in
financing activities. The Company's primary credit facility of
$45.0 million includes a revolving credit facility and a term loan.
The $7.0 million that was outstanding under the revolver at December
31, 1995 was repaid in its entirety during the first quarter of
1996. Separately, $0.5 million was repaid under the term loan
during April, 1996 (after the date of the financial statements).
The Company received $0.2 million from the exercise of stock options
during the quarter. The options exercised during the quarter were
among those assumed in connection with the acquisition of Pulse in
1995. No new options have been granted. Dividends of $0.8 million
were paid during the quarter.
Management believes that the Company will generate sufficient
cash flow during the remainder of 1996 to fund its operating
requirements, capital expenditures, interest and debt amortization
payments. In addition, internally generated funds may be used for
acquisitions of suitable businesses or assets upon terms acceptable
to the Board of Directors.
Page 7 of 13
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Recent balance sheet composition has been:
March 31, December 31, March 31,
1996 1995 1995
---- ---- ----
Cash & cash equivalents 12% 10% 6%
Other current assets 47% 47% 58%
Plant, property & equipment 30% 31% 29%
Other assets 11% 12% 7%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
Current liabilities 30% 28% 26%
Long-term debt excluding
current installments 5% 10% 15%
Other non-current liabilities 4% 4% 4%
Shareholders' equity 61% 58% 55%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
Results of Operations
For the three months ended March 31, 1996 and 1995:
Sale of Products Division
The Company sold the assets of its Products Division (a
provider of currency counters and dispensers) for a pre-tax gain of
approximately $1.5 million, or $.09 per share after tax, during the
first quarter of 1996. The Products Division was included in the
End User/Finished Products Segment, the name of which has been
changed to the Test & Measurement Products Segment.
Revenues
First quarter 1996 sales were $62.9 million, an increase of 57%
from the comparable prior year period. The increase was primarily
attributable to the sales of the Electronic Components Segment which
includes Pulse Engineering, Inc. ("Pulse"), acquired by Technitrol
on September 29, 1995. The significant sales increase of the
Electronic Components Segment exceeded a slight sales (approximately
2%) compared to the first quarter of 1995 experienced by the
Metallurgical Products Segment. The sales of the Test & Measurement
Products Segment (exclusive of the Company's Products Division)
approximated those of the first quarter of 1995. The Company's
backlog at the end of March 1996 was $59.8 million, as compared to
$55.9 million at December 31, 1995.
In the Electronic Components Segment, sales increased to $35.6
million in 1996 from $11.6 million in 1995. The sales of Pulse
constituted the vast majority of the year-to-year increase. Strong
demand for the Segment's products continued during the quarter; the
March 31, 1996 backlog of the Segment approximated $42.1 million.
Sales of the Metallurgical Products Segment for the first quarter
decreased slightly to $19.4 million in 1996 from $19.9 million in
1995. A sales decrease at Chace Precision Metals, Inc. ("Chace")
exceeded a sales increase at Advanced Metallurgy, Inc. ("AMI"). The
remaining operating units of the Test & Measurement Products Segment
are John Chatillon and Sons, Inc. ("Chatillon") and Lloyd
Instruments, Ltd. ("Lloyd"). Chatillon's quarterly sales increased
while Lloyd's quarterly sales decreased from year-to-year, with
softening in the German market contributing to the decline.
Page 8 of 13
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Cost of Sales and Operating Expenses
The Company's first quarter gross margin increased to 33.5% of
sales in 1996 from 27.4% in 1995. The gross margin increase
resulted primarily from the incremental sales of Pulse within the
Electronic Components Segment. That Segment's increased gross
margin exceeded a decrease in gross margin which occurred in the
Metallurgical Products Segment. The Metallurgical Products Segment
continued to recover from the increased price competition and raw
material (non-precious metal) cost increases of the second half of
1995. Plans implemented by the Segment's management reduced
overhead costs and lowered break-even points during the quarter.
Progress continues to be made in returning margins of this Segment
to 1995 levels.
The Test & Measurement Products Segment (exclusive of the
Products Division) experienced first quarter 1996 margins comparable
to those of the first quarter of 1995. Operating profits at
Chatillon improved from year-to-year while reorganization expenses
(for which no tax benefit was realized) were incurred by Lloyd
during the quarter. Lloyd's operating profits, without the effect of
the reorganization expenses, decreased along with its sales.
Selling, general and administrative expenses for the quarter
increased to $13.4 million, or 21.3% of sales, in 1996 from $8.2
million, or 20.5% of sales, in 1995. Causes of the increase
included the addition of Pulse, plus the aforementioned
reorganization expenses incurred by Lloyd.
Interest
Net interest income (expense) was ($123,000) for the first
quarter of 1996, a decrease from ($235,000) for the comparable prior
year period. Reduced levels of borrowing caused the decrease.
Income Taxes
The effective tax rate increased to 39.7% for the first quarter
of 1996, compared to 30.5% for the first quarter of 1995.
Contributing to the increase were the gain on the sale of assets of
the Products Division and the after-tax impact of the reorganization
expenses at Lloyd.
After tax first quarter earnings were $.68 per share, including
$.09 per share realized from the gain on the sale of the Products
Division assets.
Page 9 of 13
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
ITEM 5 OTHER INFORMATION NONE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibit Index is on page 11.
(b) Reports on Form 8-K NONE
Page 10 of 13
EXHIBIT INDEX
DOCUMENT
3. (i) Articles of Incorporation Incorporated by reference to Form
10-K for the year ended December 31, 1995
(ii) By-laws Incorporated by reference to Form
10-K for the year ended December 31, 1995
4. Instruments defining Incorporated by reference from Form
rights of security 10-K for the year ended December 31, 1982.
holders
11. Statement re computation
of per share earnings Page 12
27. Financial Data Schedule Electronic Filing Only
Page 11 of 13
EXHIBIT (11) COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
Three Months Ended
March 31, March 31,
1996 1995
---------- ----------
Net earnings $5,466,000 $1,692,000
Primary earnings per share:
Weighted average number of
common shares outstanding 7,944,375 6,042,799
Add: Shares arising from the
assumed exercise of stock
options (as determined under
the Treasury Stock Method) 39,167 --
---------- ----------
Weighted average of common and
equivalent shares 7,983,542 6,042,799
========== ==========
Primary earnings per share $ 0.68 $ 0.28
========== ==========
Fully diluted earnings per share (1):
Weighted average of common and
equivalent shares outstanding
(as determined for the Primary
earnings per share calculation above) 7,983,542 6,042,799
Add: Additional shares arising
from the assumed exercise of
stock options (as determined
under the Treasury Stock Method) -- --
---------- ----------
Weighted average of common and
equivalent shares 7,983,542 6,042,799
========== ==========
Fully diluted earnings per share $ 0.68 $ 0.28
Note (1): This calculation is submitted in accordance with the Securities Act
of 1933 Release No. 5,133 although it is not required by footnote 2 to
paragraph 14 of APB Opinion No. 15 because it results in dilution of
less than 3%.
Page 12 of 13
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)
May 7, 1996 /s/Albert Thorp, III
- ------------------------------- -----------------------------------------
(Date) Albert Thorp, III
Vice President - Finance, Treasurer and
Chief Financial Officer
May 7, 1996 /s/Drew A. Moyer
- ------------------------------- -----------------------------------------
(Date) Drew A. Moyer
Corporate Controller, Assistant Treasurer
and Principal Accounting Officer
Page 13 of 13
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