UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 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 of Incorporation) (IRS Employer Identification Number)
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each Exchange on which registered
------------------- -----------------------------------------
Common Stock
par value $.125 per share American Stock Exchange
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
--- ---
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. [X]
The aggregate market value of voting stock held by non-affiliates as of
February 15, 1996 is $199,314,000 computed by reference to the closing price
on the American Stock Exchange on such date.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of February 15, 1996.
Number of shares outstanding
Title of each class February 15, 1996
------------------- -----------------
Common stock 7,928,010
par value $.125 per share
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT REFERENCE
- --------- --------------------
The Registrant's definitive Proxy Statement, dated Part III
April 15, 1996, to be used in connection with Page 14 of 38 pages
Registrant's 1996 Annual Meeting of Shareholders
Page 1 of 38
PART I
------
ITEM I BUSINESS
- ----------------
Technitrol, Inc. and its consolidated subsidiaries (collectively the
"Company") segments its business into three industry areas: Electronic
Components, Metallurgical Products and Test & Measurement Products. The
industry segments are described in further detail below.
Additional information on the Company's foreign operations is shown in
the geographic segment information immediately following the industry segment
information below.
Industry Segment Information
- ----------------------------
* The Electronic Components Segment includes Pulse Engineering, Inc.
("Pulse"), the Fil-Mag Group ("Fil-Mag") and the Components Division of the
Company. Pulse was acquired by the Company on September 29, 1995 and
significantly increased the size of this segment. The Electronic Components
Segment designs, manufactures and markets electronic components and modules
primarily for manufacturers of local area networks and telecommunications
systems.
* The Metallurgical Products Segment includes the operations of Advanced
Metallurgy, Inc. ("AMI") and Chace Precision Metals, Inc. ("Chace"). AMI
manufactures electrical contacts and assemblies for a wide range of industrial
customers. Separately, Chace produces thermostatic and clad metal products
for a broad market of industrial and consumer product manufacturers.
* The Test & Measurement Products Segment includes Lloyd Instruments,
Ltd. ("Lloyd Instruments"), John Chatillon & Sons, Inc. ("Chatillon") and the
Products Division. Lloyd Instruments manufactures a comprehensive range of
material testing systems and markets its products throughout the world.
Chatillon manufactures force measurement products and weighing devices and in
each case markets these products both domestically and internationally. Until
its sale in February 1996, the Products Division manufactured document
counters and dispensers, and marketed its products internationally through
distributors and on an OEM basis. (See Note 14 of Notes to Consolidated
Financial Statements.) This Segment was previously called the End
User/Finished Products Segment.
Identifiable assets are those assets that are utilized in each Segment to
provide the respective products. Corporate assets are principally cash and
cash equivalents.
The Company's products are sold primarily to industrial customers through
the three Segments described above. All business Segments' revenues are
generally recognized when products are shipped. The majority of the Company's
sales are subject to credit terms prevalent in the industries it serves.
Receivables are written off when an account is considered to be doubtful of
collection. Management believes there are no significant concentrations of
credit risk.
Page 2 of 38
Industry Segment Financial Information (in thousands of dollars)
- -------------------------------------
Net sales 1995(a) 1994 1993
-------- -------- --------
Electronic Components ............... $ 68,358 $ 41,173 $ 9,375
Metallurgical Products .............. 75,304 76,534 63,935
Test & Measurement Products(b)....... 32,757 28,737 27,147
-------- -------- --------
Total ............................. $176,419 $146,444 $100,457
======== ======== ========
Operating profit before income taxes
Electronic Components ............... $ 10,698 $ 5,023 $ 1,678
Metallurgical Products .............. 1,846 4,792 2,058
Test & Measurement Products(b)....... 2,945 2,746 1,639
-------- -------- --------
Total operating profit ............ $ 15,489 $ 12,561 $ 5,375
Other income (expense), net ......... (948) (1,172) (210)
-------- -------- --------
Earnings before income taxes ...... $ 14,541 $ 11,389 $ 5,165
======== ======== ========
Assets at end of year
Electronic Components ............... $ 80,109(c) $ 25,054(d) $ 3,841
Metallurgical Products .............. 35,659 37,054 34,317
Test & Measurement Products(b)....... 15,009 14,086 12,432
-------- -------- -------
Identifiable assets ............... $130,777 $ 76,194 $ 50,590
Corporate assets .................... 14,163 8,561 7,982
-------- -------- -------
Total ............................. $144,940 $ 84,755 $ 58,572
======== ======== ========
Capital expenditures
Electronic Components ............... $ 23,953(c) $ 7,933(d) $ 238
Metallurgical Products .............. 2,248 2,288 2,191
Test & Measurement Products(b)....... 846 569 226
-------- -------- --------
Total ............................. $ 27,047 $ 10,790 $ 2,655
======== ======== ========
Depreciation and amortization
Electronic Components ............... $ 2,430(c) $ 1,502(d) $ 646
Metallurgical Products .............. 3,149 3,205 3,692
Test & Measurement Products(b)....... 666 564 653
-------- -------- --------
Total ............................. $ 6,245 $ 5,271 $ 4,991
======== ======== ========
(a) Includes three months of operations of Pulse Engineering, Inc. which
was acquired on September 29, 1995. See Note 2 of Notes to
Consolidated Financial Statements.
(b) Formerly End User/Finished Products Segment
(c) Includes property, plant and equipment acquired as part of the
acquisition of Pulse Engineering, Inc.
(d) Includes property, plant and equipment acquired as part of the
acquisition of the Fil-Mag Group. See Note 2 of Notes to Consolidated
Financial Statements.
In 1995 and in 1994, one customer accounted for slightly more than 10%
of consolidated sales. The customer is a Fortune 150 entity principally
doing business with the Metallurgical Products Segment. Another customer,
then a Fortune 50 entity principally doing business with the Metallurgical
Products Segment, produced revenues slightly exceeding 10% of total sales
in 1993. Sales to the Company's ten largest customers accounted for 38% of
sales in both 1995 and 1994 and 42% in 1993.
Export sales from the United States totalled $15.3 million in 1995,
$14.0 million in 1994 and $11.5 million in 1993. There has been no
concentration of sales to any particular domestic or international
geographic area. The Company's operations are divided into three
geographic areas: North America, Far East, and Europe.
Page 3 of 38
Geographic Information (in thousands of dollars)
- ----------------------
Sales to unaffiliated customers, from 1995 1994 1993
---- ---- ----
North America ...................... $139,455 $121,051 $ 92,976
Far East ........................... 16,936 16,036 --
Europe ............................. 20,028 9,357 7,481
-------- -------- --------
Total ............................ $176,419 $146,444 $100,457
======== ======== ========
Affiliate sales or transfers, from
North America ...................... $ 415 $ 62 $ 122
Far East ........................... 41,424 10,141 --
Europe ............................. 1,310 629 615
-------- -------- --------
Total ............................ $ 43,149 $ 10,832 $ 737
======== ======== ========
Operating Profit
North America ...................... $ 4,075 $ 9,032 $ 4,814
Far East ........................... 10,103 2,473 --
Europe ............................. 1,317 901 603
Eliminations ....................... (6) 155 (42)
-------- -------- --------
Total ............................ $ 15,489 $ 12,561 $ 5,375
======== ======== ========
Identifiable assets
North America ...................... $80,255 $ 52,084 $ 45,619
Far East ........................... 35,497 17,439 --
Europe ............................. 15,025 6,671 4,971
-------- -------- --------
Total ............................ $130,777 $ 76,194 $ 50,590
======== ======== ========
Global Activities
- -----------------
As a diversified global enterprise engaged in manufacturing
activities, certain risks are inherent to the Company's business. One such
risk is its operations in developing countries. The majority of the
Electronic Components Segment's manufacturing is performed in the People's
Republic of China (the "PRC"), Taiwan and the Philippines. Although the
PRC is one of the world's fastest growing economies, its potential
economic, political and labor developments provide a number of
uncertainties and risks. While the current Philippine government has been
quite receptive to foreign investment for manufacturing, there are no
assurances that these receptive policies will continue and, if they do not
continue, that they will not be replaced by economic, tax and/or labor
policies which are less favorable to a foreign manufacturing presence than
are the current policies. If the government of a country noted above (or
any other country in which the Company has significant operations) should
adopt economic, legal, or trading policies harmful to private industry or
foreign investment, or, if a country should take any other action that
would jeopardize the value of foreign investments, it could have a material
adverse effect on the Company. The current tension between the PRC and
Taiwan, if escalated, could lead to such action or to an American response
which makes importation of product from the region difficult.
Sales and Marketing
- -------------------
Sales and marketing are accomplished by sales management, district
managers, direct salesmen, representatives, agents, dealers and
distributors. Within the Electronic Components Segment, the Company's
products are sold primarily by the Company's field sales force to customers
in the computer, local area network (LAN) and telecommunication markets.
The field sales personnel are technically trained and actively involved in
product development. Customers of the Metallurgical Products Segment,
which include manufacturers of circuit protection, power control and power
distribution equipment, purchase the Company's products primarily through
sales personnel employed by the Company. Customers of the Company's Test &
Measurement Products Segment include virtually every industry in performing
inspection and in-process testing. The Company's Test & Measurement
Products are sold through independent agents, dealers and distributors.
Competition
- -----------
The business of the Company is highly competitive, and with respect to
each of its products, it faces competition from numerous firms, some of
which are larger and possess greater financial resources.
Page 4 of 38
Backlog
- -------
As of December 31, 1995, the Company's backlog of orders was $55.9
million compared to $28.7 million at the end of 1994. Substantially all
of the current backlog is scheduled for completion during the first six
months of 1996. Most orders are subject to cancellation upon payment of
normal cancellation charges. Normal delivery time for the Company's
products is less than thirteen weeks. No material portion of the Company's
business is seasonal in nature.
Raw Materials
- -------------
In its diverse manufacturing operations, the Company is not dependent
upon any particular source of supply. However, there are relatively few
suppliers of ferrite materials used in electronic components, powder metals
used in electrical contacts, and specialty steel used in metal laminates.
The Company has not encountered any significant difficulties in
obtaining adequate supplies of these raw materials for manufacture of its
products. During the second half of 1996, some significant price changes
occurred relative to certain nonprecious metals used by the Company. Sales
prices for many products that include these materials have been adjusted to
include metal factors which reflect changes in these metals markets. One
of the Company's subsidiaries engages in a business which utilizes silver
as a raw material component. This material has been readily available and
is anticipated to remain so.
Patents and Licenses
- --------------------
Although the Company possesses several patents and many trademarks and
tradenames which are used in the conduct of its businesses, the Company
does not consider its consolidated earnings to be materially dependent upon
any one patent, trademark or license.
Research and Development
- ------------------------
The Company does not engage in any basic research activities.
Development activity is conducted principally by the Company's engineering
personnel and is directed primarily toward the development of new products
related to its current product lines and the improvement and enhancement of
existing products.
Environment
- ----------
Expenditures required for the Company to meet or exceed Federal, state
and local provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment,
are not expected to have any material effect on capital expenditures,
earnings or competitive position.
The Company is involved in several matters relating to superfund
sites. The Company's involvement has generally arisen from the alleged
disposal by licensed waste haulers of small amounts of waste material many
years ago at these sites. The Company has established reserves which it
believes to be sufficient to cover the aggregate amount of the ultimate
liability, if any, which the Company believes to be reasonably probable at
this time.
Employees
- ---------
At December 31, 1995, the Company had approximately 9,300 full time
employees compared with 3,100 at the end of 1994. Certain operations of
the Company, particularly in the Far East, are labor intensive.
Energy
- ------
The Company did not experience any curtailment of supplies of
electricity, gas or oil in 1995, and does not expect any curtailment in
1996.
Products
- --------
The Company's business is grouped into three industry segments and,
within each segment, the primary products sold are similar in design,
material content, application and customer base. Each Segment is
continually changing its individual product offerings in response to
customer needs and changes within the markets served. Further delineation
of its product lines is not meaningful in gaining an understanding of the
Company's business
Page 5 of 38
risks and opportunities. The Electronic Components Segment primarily
produces magnetic-based electronic components for use in local area
networks and communication applications. The Metallurgical Products
Segment's main product offerings are electrical contacts and contact
materials. The principal product line of the Test & Measurement Products
Segment consists of products used in material testing and measurement,
including hand-held force measurement gauges and tensile testing systems.
These three industry Segments provide the framework with which to
understand the Company's product lines and business taken as a whole.
ITEM 2 PROPERTIES
- ------------------
The following properties were owned or leased by the Company at
December 31, 1995. The Trevose and Philadelphia locations are used in more
than one business segment. All other properties are used exclusively in
one segment, as identified.
<TABLE>
<CAPTION>
Approx. Owned/ Lease % Used
Location Square Ft. Leased Ending for Mfg. Comments
- --------------------- ----------- ------ ------- -------- -------------------------------
<S> <C> <C> <C> <C> <C>
Trevose, PA 4,400 Leased 2001 0 Corporate headquarters
Philadelphia, PA 70,000 Owned 40 Location houses Products
Division assets which were sold
in 1996.
Electronic Components
- -----------------------
Greensboro, MD 20,000 Owned 95
San Diego, CA 50,000 Owned 0
Tuam, Ireland 60,000 Owned 35
Hong Kong 13,000 Leased 1997 0
Dongguan, Peoples
Republic of China 215,000 Leased 2007 95
Cavite, Philippines 50,000 Owned 75 Building is owned; land is
leased through 2007
Kaohsiung, Taiwan 51,000 Owned 55 Building is owned; land is
leased through 2003
Metallurgical Products
- ------------------------
Export, PA 115,000 Leased 2001 80
McKeesport, PA 23,000 Leased 2004 100
Delmont, PA 30,000 Owned 90
Lancaster, PA 15,000 Leased 1996 85
Cedar Knolls, NJ 48,000 Owned 65
Reidsville, NC 250,000 Owned 70
Luquillo, P.R. 32,000 Owned 80
Luquillo, P.R. 12,000 Leased 1998 40
Test & Measurement Products
- ---------------------------
Feasterville, PA 2,000 Leased 1996 0 Lease assumed in 1996 by
purchaser of Products Division
assets.
Kew Gardens, NY 67,000 Owned 75
Greensboro, NC 23,000 Owned 60
Fareham, England 22,000 Leased 2004 50
Wuppertal, Germany 20,000 Leased 2005 60
Versailles, France 2,000 Leased 1997 0
</TABLE>
The Company believes its facilities to be adequate for its present needs.
Page 6 of 38
ITEM 3 PENDING LEGAL PROCEEDINGS
- ---------------------------------
The Company is a defendant in several lawsuits which it considers to
be in the normal course of business, none of which is expected to have a
material adverse effect on the Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
- -------------------------------------------------------------------
PART II
ITEM 5 MARKET PRICE OF REGISTRANT'S COMMON STOCK AND RELATED SECURITY MATTERS
- ------------------------------------------------------------------------------
Technitrol Inc.'s common stock is traded on the American Stock
Exchange. The following table reflects the high and low sales prices on
such Exchange and the dividends paid to shareholders in each quarterly
period during Technitrol's last two fiscal years.
QUARTER 1ST 2ND 3RD 4TH
------- ------- ------- -------
1995 HIGH $15.625 $15.000 $18.000 $23.750
1995 LOW $13.375 $13.250 $14.000 $15.875
1995 DIVIDENDS PAID $ 0.095 $ 0.095 $ 0.100 $ 0.100
1994 HIGH $11.792 $12.917 $14.500 $16.000
1994 LOW $ 9.875 $10.875 $11.583 $12.000
1994 DIVIDENDS PAID $ .093 $ .093 $ .093 $ .095
The approximate number of holders of record of the common stock, Technitrol
Inc.'s only class of stock outstanding, as of January 12, 1996 was:
TITLE OF CLASS NUMBER OF SHAREHOLDERS
-------------- ----------------------
Common Stock 745
par value $.125 per share
Page 7 of 38
<TABLE>
<CAPTION>
ITEM 6 SELECTED FINANCIAL DATA LAST 5 YEARS (in thousands, except per share data)
1995(a) 1994(a) 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $176,419 $146,444 $100,457 $ 98,554 $ 81,169
Net earnings $ 9,340 $ 6,944 $ 3,356(b) $ 2,838 $ 2,767
Earnings per share $ 1.43 $ 1.15 $ .56(b) $ .48 $ .47
Total assets $144,940 $ 84,755 $ 58,572 $ 55,708 $ 52,512
Total long-term debt $ 17,125 $ 15,146 $ 5,167 $ 6,887 $ 4,965
Shareholders' equity $ 84,761 $ 45,757 $ 40,294 $ 38,657 $ 38,303
Net worth per share $ 10.82 $ 7.60 $ 6.73 $ 6.48 $ 6.46
Working capital $ 43,242 $ 32,676 $ 24,056 $ 23,178 $ 23,161
Working capital ratio 2.1 to 1 2.5 to 1 2.8 to 1 3.3 to 1 3.0 to 1
Number of shares outstanding:
Weighted average, including
common stock equivalents 6,538 6,015 5,989 5,961 5,920
Year end 7,836 6,021 5,986 5,970 5,929
Dividends declared per share $ .395 $ .376 $ .373 $ .373 $ .373
Price range per share:
High $ 23.750 $ 16.000 $ 10.125 $ 11.000 $ 9.875
Low $ 13.250 $ 9.875 $ 7.583 $ 6.625 $ 8.080
(a) The Company acquired Pulse Engineering, Inc. in 1995 and the Fil-Mag Group
in 1994. See Note 2 to Consolidated Financial Statements.
(b) Excludes cumulative effect of a change in accounting for income taxes.
(See Note 6 to the Consolidated Financial Statements.)
</TABLE>
Page 8 of 38
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
----------------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents totalled $13.9 million at December 31, 1995,
compared to $8.7 million a year earlier. Working capital was $43.2 million,
compared to $32.7 million at December 31, 1994. The financial performance
during the fourth quarter of 1995, which included the operations of Pulse
Engineering, Inc. ("Pulse"), contributed to the year-to-year increase in
working capital. Pulse was acquired at the end of September 1995 and the
large increases in consolidated accounts receivable and inventory were due
primarily to the Pulse balances acquired. Pulse had a favorable working
capital ratio prior to the acquisition and it remained strong subsequent to
the acquisition. Additional information regarding the Pulse acquisition is
included in Note 2 of Notes to the Consolidated Financial Statements.
Cash provided by 1995 operating activities was $18.2 million. The
positive cash flow was composed mainly of net earnings of $9.3 million,
depreciation and amortization of $6.2 million, and increases in accounts
payable and accrued expenses of $1.2 million and $1.7 million, respectively.
Depreciation and amortization amounts included three months of depreciation on
the Pulse assets and three months of amortization of the goodwill resulting
from the Pulse acquisition. Significant decreases in prepaid expenses and
other assets (excluding amounts acquired from Pulse) also provided cash during
the year. Cash was provided by a decrease in accounts receivable of $1.3
million while cash of $2.8 million was consumed by an increase in inventories.
The increase in inventories includes amounts produced by the Electronic
Components Segment, which includes Pulse, in anticipation of the Chinese
New Year holiday in February 1996. The Company's production operations in
the Peoples Republic of China (the "PRC") and in Taiwan are typically closed
for one to two weeks for this holiday and inventory is built in anticipation
of the lost production time.
Investing activities consumed $11.6 million during 1995. Capital
expenditures constituted $5.9 million, excluding acquisitions. Separately,
cash of $5.9 million was paid for the capital stock of Pulse stockholders, net
of cash acquired. The cash portion of the purchase price, including the cash
paid to the former stockholders of Pulse and related acquisition costs, was
approximately $27.6 million. Cash acquired from Pulse and used to partially
fund the acquisition was approximately $21.7 million. Additional financing
for the acquisition was provided by bank borrowings as described below.
Projected 1996 capital expenditures are expected to be financed by internally
generated funds.
Cash used in financing activities was a net $1.3 million. Cash consumed
by financing activities was due to combined debt reduction of $7.8 million and
$2.5 million of dividend payments. It is expected that dividends will continue
to be paid on a quarterly basis during 1996. Proceeds from long-term
borrowings were $9.0 million. The proceeds included $5.0 million which was
used to finance the May 1995 purchase of warrants for Pulse common stock. In
connection with the September 1995 closing of the Pulse acquisition, an
additional $4.0 million was borrowed under a bank syndicated credit facility
which authorized Technitrol to borrow up to $50 million on an unsecured basis.
Technitrol used approximately $18.0 million of this credit facility to
refinance existing indebtedness (including the $5.0 million which had been
borrowed to fund the Pulse warrant purchase in May 1995) and, separately,
approximately $4.0 million of the credit facility to partially fund the
acquisition costs and cash payments to former shareholders of Pulse. On
December 29, 1995, the credit facility was amended in conjunction with a
partial repayment and the total facility was reduced to $45.0 million.
Further payments in advance of the due date were made in February and March of
1996 in amounts of $6.0 million and $1.0 million, respectively. Approximately
$3.6 million (before payment of related transaction expenses and costs) was
received at the end of February 1996 from the sale of the Products Division as
explained in Note 14 of Notes to the Consolidated Financial Statements. A
portion of these funds were applied in March, as aforementioined, to pay off
all amounts outstanding under the line of credit. The balance of the funds
received will be used for general working capital purposes.
Page 9 of 38
The Company's foreign sales are conducted primarily through its foreign
subsidiaries, principally in the Far East and Europe. In the Far East, the
Company's sales are denominated primarily in U.S. dollars. In Europe, sales
are denominated in local currencies (consisting mainly of English pounds and
French francs) and in U.S. dollars. Since a very significant portion of the
Company's foreign sales are denominated in U.S. dollars, the Company does not
believe that its potential exposure to currency fluctuations is material to
its business. During 1994, the Company did not purchase any currency exchange
forward contracts or similar instruments generally utilized to reduce the risk
of currency fluctuations. During 1995, a limited number of short-term forward
contracts were purchased by a Pulse subsidiary in Europe. All such contracts
were closed prior to the end of the year. These contracts are purchased in
order to guarantee a predetermined currency exchange rate at the time the
contract is purchased by transferring the risk or benefit of currency
fluctuations to a third party.
Slightly more than one-quarter of the Company's identifiable assets are
located in the Far East and significant sales and operating profits are
generated in that region. (See the geographic segment data included in Note
13 of Notes to the Consolidated Financial Statements.) The Company's
operations in the region include manufacturing plants in the PRC, Taiwan and
the Philippines. If unfavorable political, economic or other events occur in
that region, they could have a material adverse effect on the Company's
liquidity and capital resources. Management monitors events in the region and
takes steps to reduce the risk of uncertainty when possible.
Balance Sheet Composition at December 31:
<TABLE>
<CAPTION>
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents 10% 10% Current liabilities 28% 25%
Other current assets 47% 53% Long-term debt excluding
current installments 10% 18%
Property, plant, and equipment 31% 29% Other non-current liabilities 4% 3%
Other assets 12% 8% Shareholders' equity 58% 54%
---- ---- ---- ----
Total 100% 100% Total 100% 100%
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
1995 and 1994
- -------------
Revenues
- --------
Consolidated sales for the Company were $176.4 million in 1995, an
increase of 20.5% from 1994. The increase was largely due to the sales of
Pulse, acquired at the end of September 1995. The Pulse sales included in
the consolidated results of the Company were approximately $25.4 million.
The sales increases of the Electronic Components Segment (which includes
Pulse) and the Test & Measurement Products Segment exceeded a sales
decrease experienced by the Metallurgical Products Segment. The Company's
backlog at December 31, 1995 was $55.9 million, including $28.2 million for
Pulse.
Page 10 of 38
The sales of the Electronic Components Segment increased from $41.2
million in 1994 to $68.4 million in 1995. The Fil-Mag Group and Pulse,
along with the Components Division of the Company, have been combined into
one world-wide operation serving the needs of the local area network (LAN)
and telecommunications marketplaces. In addition to the Pulse sales noted
above, sales of the Fil-Mag Group increased during the year. The lower
sales level of the Components Division, which was caused by a decline in
domestic demand for that Division's products, was more than offset by
increased demand for products manufactured by Fil-Mag and Pulse. The strong
demand of these markets for products produced by Pulse and the Fil-Mag Group
continued into the beginning of 1996, as evidenced by solid backlog and order
levels at the end of 1995. Operating profits for the Segment in 1995 were
$10.7 million compared to $5.0 million in 1994. The sales and operating
profits of the Segment included three months of Pulse activity.
The Metallurgical Products Segment experienced a number of challenges
during 1995 and the sales and operating profits of this Segment were lower
than the 1994 levels. Sales in 1995 were $75.3 million, down from $76.5
million in 1994. A sales decrease at Advanced Metallurgy, Inc. ("AMI")
exceeded a sales increase at Chace Precision Metals, Inc. ("Chace"). The
sales of AMI and, to a lesser extent, Chace are affected by general trends
in the domestic economy, particularly those in housing, automotive,
appliances and capital equipment markets. During the second half of 1995,
there was a softening in demand for the products of this Segment. In
addition, the Segment's operating profits were negatively impacted by increased
price competition and rapidly escalating raw material costs, particularly in
the nonprecious metals markets. Management has focused significant
attention on attaining increased manufacturing efficiencies and has
implemented a partial pass-through of the raw material price changes by
way of both a price increase and a metals factor. Operating profits of the
Segment were $1.8 million in 1995, down from $4.8 million in 1994.
In the Test & Measurement Products Segment, sales increases at John
Chatillon & Sons, Inc. ("Chatillon") and Lloyd Instruments, Inc. ("Lloyd")
exceeded a sales decrease at the Products Division. That sales decrease
was primarily caused by weak domestic demand for the currency counters and
dispensers manufactured by the Products Division. The February 1996 sale of
the Products Division evidenced management's intention to focus on the test and
measurement product lines within this Segment. Relative to the 1995
results, Lloyd in particular contributed to the higher sales and operating
profits of the Segment. The 1995 Lloyd sales included a full year of the
sales of Erichsen, a German subsidiary acquired late in 1994. Chatillon's
sales benefited from recent product development efforts. Sales for the Segment
increased from $28.7 million in 1994 to $32.8 million in 1995 while operating
profits increased from $2.7 million to $2.9 million.
Cost of Sales
- -------------
In 1995, the Company's gross margin increased by 6%, from 29.6% of sales
in 1994 to 31.5% in 1995. This margin increase was driven primarily by the
strong product demand and increased manufacturing efficiencies within the
Electronic Components Segment. These gains offset the lower gross profits
of the Metallurgical Products Segment which experienced significant decreases
in gross profits versus the prior year, with the majority of the gross profit
decline occurring at AMI. The softer demand, increased price competition and
rising metal costs noted above caused this decline.
Operating Expenses
- ------------------
The Company's selling, general and administrative expenses increased
to $40.2 million in 1995 from $30.8 million in 1994. This represented
22.8% of sales in 1995 and 21.0% of sales in 1994. The increase was
primarily caused by the addition of Pulse for the fourth quarter.
Interest
- --------
Interest expense increased from $1.1 million in 1994 to $1.4 million
in 1995 reflecting the incremental borrowing related to the Pulse acquisition.
Page 11 of 38
Income Taxes
- ------------
The Company's effective income tax rate declined to 36% in 1995 from
39% in 1994. During 1995, proportionately higher taxable income was earned
by the Company's foreign operations, which generally have lower tax rates
than the domestic operations.
During 1995, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 123, Accounting for Stock-Based Compensation
("FAS123"). Under the new standard, companies have the option of including
certain stock-based compensation in the company's statement of earnings or,
alternately, providing disclosure of the related compensation amounts in a
note to the financial statements. The new disclosures apply to financial
statements for years beginning after December 15, 1995. The Company
intends to adopt the disclosure alternative and does not expect FAS123 to
have a material impact on its pro forma results of operations. During
1995, the Company did not grant incentive stock options to employees.
However, in connection with the acquisition of Pulse on September 29, 1995
(see Note 2 to Consolidated Financial Statements), outstanding options to
purchase Pulse common stock were assumed by the Company and converted into
options to purchase Technitrol common stock. The difference between the
exercise price and the market value of Technitrol stock at the date of
acquisition was capitalized as part of the purchase price. No additional
options are expected to be issued under the assumed plans. See Note 11 to
the Consolidated Financial Statements for additional information regarding
stock-based compensation provided by the Company.
The Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, is effective for fiscal years beginning after December 15,
1995. The adoption of this standard is not expected to have a material
impact on the Company.
1994 and 1993
- -------------
Revenues
- --------
In 1994, consolidated sales were $146.4 million compared to $100.5
million in 1993. The 45.7% increase was due to the $30.8 million sales of
the Fil-Mag Group, acquired in January 1994, and a combined sales increase
of $15.1 million realized by the other businesses of the Company. All
three of the Company's segments experienced increased sales in 1994 from
1993.
The December 31 backlog was $28.7 million in 1994 and $14.9 million in
1993. Contributing to the increase was the Fil-Mag Group's backlog.
The increase in sales of the Electronic Components Segment to $41.2
million included the sales of the Fil-Mag Group as noted above. Operating
profit of the Electronics Components Segment increased to $5.0 million in 1994,
compared to $1.7 million in the prior year. The increase reflected the
fifty weeks of profits of the Fil-Mag Group since its acquisition in
January 1994. As a percentage of sales, this segment's annual operating
profits equaled 12.2% which was the highest of the Company's three product
segments. Year end backlog and order volumes indicated a softening in the
segment's domestic markets, while offshore demand remained relatively
strong.
The Metallurgical Products Segment produced increased sales, operating
profit and operating profit as a function of sales in 1994 as compared to
1993. AMI experienced its largest sales and profit improvements to the
product line which was acquired from Engelhard Corporation in 1991.
Housing starts continued to have an eventual impact on demand for various
AMI products. Management monitored the indirect effect that interest rate
increases had on AMI backlog levels which were stable entering the first
quarter of 1995. Separately, Chace sales and operating profits also grew
year-to-year. On-going efforts aimed at cost containment and quality
improvements contributed to the growth in sales volume and profits. Chace's
proven ability to compete in a demanding industrial market was reflected by
a strong backlog position as it began 1995.
Page 12 of 38
Two of the three operating units within the Test & Measurement
Products Segment experienced an increase in sales and operating profits.
Chatillon sales volume and profitability improved in its primary product
families, as the improved economic climate contributed to more favorable
market conditions. Lloyd's year-to-year sales increase reflected
incremental unit sales and the absence of the unfavorable currency
translation which negatively impacted 1993 results. Lower sales and
operating profit occurred at the Company's Products Division. Domestic
demand for currency counters and dispensers decreased during 1994, which
was also the first full year subsequent to the Division withdrawing as a
provider of engineering services on a prime contract basis to an agency of
the U.S. Government.
Cost of Sales
- -------------
In 1994, the Company's overall gross margin increased to 29.6% of
sales from 26.9% in 1993. Improvements were made in each of the Company's
three business segments. The addition of the Fil-Mag Group within the
Electronic Components Segment, cost containment and quality improvements
within the Metallurgical Products Segment and the higher sales of Chatillon
and Lloyd included in the Test & Measurement Products Segment all
contributed to a higher gross margin in 1994.
Operating Expense
- -----------------
The Company's selling, general and administrative expenses increased to
$30.8 million in 1994 from $21.6 million in 1993. The key reason for the
increase was the addition of the Fil-Mag Group.
Interest
- --------
Interest expense grew to $1.1 million, caused by the $10 million
increase in outstanding debt to fund the Fil-Mag Group acquisition and
rising interest rates during the year.
Income Taxes
- ------------
1994 income tax expenses increased as a function of pre-tax earnings.
The 1994 effective income tax rate rose to 39% from 35% in 1993 as a result
of proportionately higher taxable income being earned by the Company's
domestic operations. Effective income tax rates of the domestic operations
generally exceed those of the Company's offshore operations.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
The Company's consolidated financial statements, notes to the
consolidated financial statements, together with the opinion of the
Company's independent auditors and the supplementary financial information
required by this item are attached hereto and made part hereof.
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - NONE
- -------------------------------------------------------------------
Page 13 of 38
PART III
CROSS REFERENCE INDEX
FORM 10-K
ITEM NUMBER AND CAPTION INCORPORATED MATERIAL
------------------------------ ------------------------------
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, REGISTRANT'S DEFINITIVE PROXY
PROMOTERS & CONTROL PERSONS STATEMENT
ITEM 11 EXECUTIVE COMPENSATION REGISTRANT'S DEFINITIVE PROXY
STATEMENT
ITEM 12 SECURITY OWNERSHIP OF CERTAIN REGISTRANT'S DEFINITIVE PROXY
BENEFICIAL OWNERS AND STATEMENT
MANAGEMENT
ITEM 13 CERTAIN RELATIONSHIPS AND REGISTRANT'S DEFINITIVE PROXY
RELATED TRANSACTIONS STATEMENT
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
(a) Documents filed as part of this report
Financial Statements
--------------------
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Earnings and Retained Earnings -
Years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Financial Statement Schedules
-----------------------------
Schedule II, Valuation and Qualifying Accounts
(b) The Company filed a report on Form 8-K on October 13, 1995
regarding the acquisition of Pulse Engineering on
September 29, 1995.
(c) Exhibits
(11) Computation of Primary and Fully Diluted Earnings Per Share
(21) Subsidiaries of the Registrant
(23) Consent of Certified Public Accountants
(27) Financial Data Schedule (electronic filing only)
Page 14 of 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TECHNITROL, INC.
By /s/Thomas J. Flakoll
-------------------------------------
Thomas J. Flakoll
Chief Executive Officer and Director
Date March 20, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/Stanley E. Basara By /s/Drew A. Moyer
------------------------------- ------------------------------
Stanley E. Basara Drew A. Moyer
Director Corporate Controller
(Principal Accounting Officer)
Date March 20, 1996 Date March 20, 1996
By /s/John E. Burrows, Jr. By /s/James M. Papada, III
------------------------------- ------------------------------
John E. Burrows, Jr. James M. Papada, III
Director Chairman of the Board of Directors
Date March 20, 1996 Date March 20, 1996
By /s/J. Barton Harrison By /s/James J. Rafferty, Jr.
------------------------------- ------------------------------
J. Barton Harrison James J. Rafferty, Jr.
Director Vice President and Director
Date March 20, 1996 Date March 20, 1996
By /s/Roy E. Hock By /s/Albert Thorp, III
------------------------------- ------------------------------
Roy E. Hock Albert Thorp, III
Director Vice President - Finance and
Treasurer (Principal Financial
Officer)
Date March 20, 1996 Date March 20, 1996
By /s/Graham Humes
-------------------------------
Graham Humes
Director
Date March 20, 1996
By /s/Edward M. Mazze
------------------------------
Edward M. Mazze
Director
Date March 20, 1996
Page 15 of 38
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements
--------------------
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Earnings and Retained Earnings -
Years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Financial Statement Schedules
-----------------------------
Schedule II - Valuation and Qualifying Accounts
Page 16 of 38
Independent Auditors' Report
The Board of Directors and Shareholders
Technitrol, Inc.:
We have audited the consolidated financial statements of Technitrol, Inc.
and subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and the
financial statement schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Technitrol, Inc. and subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 1, 1996
Page 17 of 38
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
In thousands of dollars, except for share data
Assets 1995 1994
------ -------- -------
Current Assets:
Cash and cash equivalents $ 13,894 $ 8,716
Receivables:
Trade 33,431 22,614
Other 308 139
Inventories 32,962 21,714
Prepaid expenses and other current assets 2,019 851
-------- -------
Total current assets 82,614 54,034
Property, plant and equipment 81,063 55,180
Less accumulated depreciation 35,935 30,809
-------- -------
Net property, plant and equipment 45,128 24,371
Deferred income taxes 4,132 2,409
Excess of cost over net assets acquired 10,957 2,320
Other assets 2,109 1,621
-------- -------
$144,940 $84,755
======== =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 2,023 $ 22
Short-term debt -- 756
Accounts payable 8,359 5,841
Accrued expenses 28,990 14,739
-------- -------
Total current liabilities 39,372 21,358
Long-term liabilities:
Long-term debt, excluding current installments 15,102 15,124
Accrued pension expense 2,237 2,516
Other long-term liabilities 3,468 --
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock, $.125 par. 30,000,000 shares
authorized and 10,733,832 issued in 1995;
10,000,000 shares authorized and 8,943,960
issued in 1994. 1,342 1,118
Additional paid-in capital 36,907 4,329
Retained earnings 52,517 45,923
-------- -------
90,766 51,370
Less: Cost of treasury stock (2,897,963 shares
in 1995, and 2,922,508 in 1994) (4,535) (4,573)
Unearned compensation under stock award plan (697) (560)
Cumulative translation adjustment (773) (480)
-------- -------
Total shareholders' equity 84,761 45,757
-------- -------
$144,940 $84,755
======== =======
See accompanying Notes to Consolidated Financial Statements.
Page 18 of 38
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings and Retained Earnings
Years ended December 31, 1995, 1994 and 1993
In thousands, except per share data
1995 1994 1993
-------- -------- --------
Net sales $176,419 $146,444 $100,457
Cost of sales 120,765 103,096 73,480
-------- -------- --------
Gross profit 55,654 43,348 26,977
Selling, general and administrative expenses 40,165 30,787 21,602
-------- -------- --------
Operating profit 15,489 12,561 5,375
Other income (expense):
Interest income 374 140 108
Interest expense (1,383) (1,130) (389)
Other, net 61 (182) 71
-------- -------- --------
(948) (1,172) (210)
-------- -------- --------
Earnings before income taxes 14,541 11,389 5,165
Income taxes 5,201 4,445 1,809
-------- -------- --------
Net earnings before cumulative effect of a
change in accounting for income taxes $ 9,340 $ 6,944 $ 3,356
Cumulative effect on prior years
(to January 1, 1993) of a change in
accounting for income taxes (Note 6) -- -- 261
-------- -------- --------
Net earnings $ 9,340 $ 6,944 $ 3,617
======== ======== ========
Earnings per share:
Before cumulative effect of a change in
accounting for income taxes $ 1.43 $ 1.15 $ .56
Cumulative effect of a change in accounting
for income taxes $ -- $ -- $ .04
-------- -------- --------
Total earnings per share $ 1.43 $ 1.15 $ .60
======== ======== ========
Average outstanding common and
equivalent shares 6,538 6,015 5,989
======== ======== ========
Retained earnings:
Balance at beginning of year $ 45,923 $ 41,993 $ 40,614
Net earnings for the year 9,340 6,944 3,617
-------- -------- --------
$ 55,263 $ 48,937 $ 44,231
200% Common stock dividend -- 745 --
Cash dividends declared:
($.395 per share in 1995, $.376 in
1994 and $.373 in 1993) 2,746 2,269 2,238
-------- -------- --------
Balance at end of year $ 52,517 $ 45,923 $ 41,993
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
Page 19 of 38
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993
In thousands of dollars
Cash flows from operating activities: 1995 1994 1993
------- ------- -------
Net earnings $ 9,340 $ 6,944 $ 3,617
Cumulative effect of a change in accounting
for income taxes -- -- (261)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 6,245 5,271 4,991
Loss (gain) on disposal of equipment (40) 88 (60)
Changes in assets and liabilities net of
effect of acquisitions:
Increase in deferred tax benefits (1,711) (1,019) (492)
Increase in accounts payable 1,216 1,082 689
Increase in accrued expenses 1,704 4,967 1,779
(Increase)decrease in accounts receivable 1,346 (4,626) 142
(Increase)decrease in inventories (2,769) (2,482) 1,031
Other, net 2,848 (606) 112
------- ------- -------
Net cash provided by operating activities 18,179 9,619 11,548
------- ------- -------
Cash flows from investing activities:
Acquisition of capital stock of the Fil-Mag
Group, net of cash acquired -- (8,805) --
Acquisition of Pulse, net of cash acquired (5,872) -- --
Capital expenditures, exclusive
of acquisitions (5,864) (4,429) (2,655)
Proceeds from sale of property, plant
and equipment 158 282 71
------- ------- -------
Net cash used in investing activities (11,578) (12,952) (2,584)
------- ------- -------
Cash flows from financing activities:
Repayment of Fil-Mag Group
funded indebtedness -- (1,014) --
Principal payments on long-term debt (7,022) (21) (8,421)
Net repayments of short term debt (756) (2,504) --
Proceeds of long-term borrowings 9,000 10,000 6,700
Dividends paid (2,534) (2,255) (2,237)
------- ------- -------
Net cash provided by (used in)
financing activities (1,312) 4,206 (3,958)
------- ------- -------
Net effect of exchange rate changes
on cash (111) 122 (33)
Net increase in cash and
cash equivalents 5,178 995 4,973
Cash and cash equivalents at beginning of year 8,716 7,721 2,748
------- ------- -------
Cash and cash equivalents at end of year $13,894 $ 8,716 $ 7,721
======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
Page 20 of 38
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Technitrol,
Inc. (the "Company") and all of its subsidiaries. All material
intercompany accounts and transactions are eliminated in consolidation.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include funds invested in a variety of liquid
short-term investments with a maturity of three months or less.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method. In addition to the inventories
included in the accompanying balance sheets, the Company has custody of
inventories on consignment from suppliers ($11,118,000 at December 31, 1995
and $14,063,000 at December 31, 1994). This inventory consists primarily
of silver which is used in the Company's metal contact manufacturing
business.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. Depreciation is based
upon the estimated useful life of the assets and has been provided for on
both the accelerated and the straight line methods. The estimated useful
lives range from 5 to 30 years for buildings and improvements and from 3 to
10 years for machinery and equipment. Expenditures for maintenance and
repairs are charged to operations as incurred, and major renewals and
betterments are capitalized. Upon sale or retirement, the cost of the
asset and related accumulated depreciation are removed from the balance
sheet, and any resulting gains or losses are included in earnings.
Excess of Cost over Net Assets
- ------------------------------
Excess of cost over net assets acquired (which the Company believes has
continuing value) is being amortized on a straight-line basis over 15
years. The recoverability of its carrying value is evaluated on a recurring
basis by determining whether the amortization of its remaining balance can
be recovered through future operating cash flows of the acquired operation.
Earnings per Share
- ------------------
Earnings per share are calculated by dividing earnings by the weighted
average number of common shares outstanding during the year, including
common share equivalents. Common share equivalents are incremental shares
attributed to outstanding options to purchase common stock. Relevant
earnings per share amounts have been restated to reflect a 200% stock
dividend recorded on September 18, 1994.
Foreign Currency Translation
- ----------------------------
Most foreign subsidiaries' functional currency is the U.S. dollar; those
entities translate monetary assets and liabilities at year-end exchange
rates while nonmonetary items are translated at historical rates. Income
and expense accounts are translated at the average rates in effect during
the year, except for depreciation and cost of sales which are translated at
historical rates. Gains or losses from changes in exchange rates are
recognized in earnings in the year of occurrence. The remaining entities
use the local currency as the functional currency and translate net assets
at year-end rates while income and expense accounts are translated at
average exchange rates. Adjustments resulting from these translations are
reflected in the shareholders' equity section titled "Cumulative
translation adjustment."
Fair Value of Financial Instruments
- -----------------------------------
The carrying value of cash and cash equivalents, receivables, other current
assets, accounts payable and accrued expenses approximates fair value
because of the short maturity of those instruments. The carrying value of
long term debt approximates fair value after taking into consideration
current rates offered to the Company for similar debt instruments of
comparable maturities.
Page 21 of 38
2
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
------------------------------------------
Estimates
- ---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions may affect the reported
amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications
- -----------------
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year presentation.
(2) Acquisitions
------------
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
paid 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.
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. At the date of
acquisition, approximately 269,000 shares of Technitrol common stock were
issuable upon exercise of such options and, except for approximately 33,000
options which were not yet vested, all assumed options were exercisable
immediately at prices ranging from $1.73 to $15.61. The options have
various expiration dates, the latest of which is in April 2001. The shares
issued and the options outstanding were included in the weighted average
shares outstanding used for calculating earnings per share for the quarter
and the year ended December 31, 1995.
In conjunction with the Pulse acquisition, Technitrol established a credit
facility with a group of banks which authorized Technitrol to borrow up to
$50 million on an unsecured basis. Technitrol initially used approximately
$18 million of this credit facility to refinance existing indebtedness and,
separately, approximately $4 million of the credit facility to partially
fund the cash portion of the merger consideration. On December 29, 1995,
the credit facility was amended in conjunction with a partial repayment and
the total facility was reduced to $45 million.
(continued)
Page 22 of 38
3
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Acquisitions, continued
------------
Since the shares issued to the former holders of Pulse common stock and the
options assumed in connection with the acquisition were outstanding for the
entire fourth quarter (but only for a portion of the entire year), the
weighted average shares outstanding were considerably different for the
year than for the fourth quarter alone. As a result, the earnings per
share for the year will not equal the sum of the four quarterly earnings
per share amounts.
The acquisition has been accounted for by the purchase method of
accounting. Had Pulse been acquired on January 1, 1994, unaudited
consolidated pro forma results of operations would have been (in thousands,
except for earnings per share):
Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
Sales $252,104 $177,913
Net earnings $16,825 $8
Earnings per share $2.10 $0.00
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 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 conducted 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 purchase price of the Fil-Mag Group 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 assets acquired and liabilities assumed
approximated $15.5 million and $8.6 million, respectively. The excess of
cost over net assets acquired approximated $2.5 million. 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.
(continued)
Page 23 of 38
4
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Acquisitions, continued
------------
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 agreement.
The purchase price for Pulse and the purchase price for the Fil-Mag
Group were 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 each member of the Fil-Mag Group and the synergies
of the businesses with the current operations of the Company.
(3) Financial Statement Details
---------------------------
The following provides details for certain financial statement
captions at December 31, 1995 and 1994:
1995 1994
------- -------
Inventories
Finished goods $12,926 $ 5,471
Work in progress 8,888 8,420
Raw materials and supplies 11,148 7,823
------- -------
$32,962 $21,714
======= =======
Property, plant and equipment
Land $ 2,152 $ 1,044
Buildings and improvements 23,026 15,074
Machinery and equipment 55,885 39,062
------- -------
$81,063 $55,180
======= =======
Accrued expenses
Income taxes payable $ 7,082 $ 1,916
Dividends payable 784 572
Accrued compensation 5,980 3,118
Current portion of accrued pension expense 2,321 2,073
Other accrued expenses 12,823 7,060
------- -------
$28,990 $14,739
======= =======
(continued)
Page 24 of 38
5
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(4) Long-term Debt
--------------
Long-term debt was as follows (in thousands):
1995 1994
---- ----
Bank Loans
- ----------
Fixed rate term loan (6.65%) due December 29, 2000 $10,000 $ --
Variable rate revolving credit facility with $35.0
million maximum draw, due September 29, 1998 $ 7,000 --
Variable-rate (LIBOR plus 0.75%) bank loan facility
with $20.0 million maximum draw, due March 1997
(6.97% rate at December 31, 1994) $ -- $15,000
------- -------
Total bank loans $17,000 $15,000
Mortgage Notes, secured by mortgages on land, buildings,
and certain equipment:
4.5% mortgage notes, due in monthly installments
until 2000 125 146
------- -------
Total long-term debt 17,125 15,146
Less current installments 2,023 22
------- -------
Long-term debt excluding current installments $15,102 $15,124
======= =======
At the Company's option, interest on the revolving credit facility at
December 31, 1995 may be based on the prime rate or on the LIBOR rate plus
0.625%. At December 31, 1995, $5 million was outstanding under the prime rate
(then 8.5%) and $2 million was outstanding under the LIBOR rate alternative
(then 6.5%).
Principal payments due within the next five years are as follows (in
thousands):
1996 $ 2,023
1997 2,024
1998 9,025
1999 2,026
2000 2,027
The Bank Loan facilities are unsecured and contain certain covenants
requiring maintenance of minimum net worth and other customary and normal
provisions. The Company is in compliance with all such covenants.
(continued)
Page 25 of 38
6
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(5) Research and Development Expense
--------------------------------
Research and development expense is included in selling general and
administrative expenses and has not exceeded 11% of such expenses in 1995, 1994
and 1993.
(6) Income Taxes
------------
During 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). FAS 109 required a change from the deferred method of accounting for
income taxes of Accounting Principles Board Opinion 11 to the asset and
liability method of accounting for income taxes. Under the asset and liability
method of FAS 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. The change in these deferred tax assets or liabilities,
including the effect of a change in tax rates, if any, from the beginning to
the end of the period generally is recognized as deferred tax expense or
benefit. Effective January 1, 1993, the Company adopted FAS 109 and has
reported the cumulative effect of that change in the method of accounting for
income taxes in the consolidated statement of earnings for the year ended
December 31, 1993.
Earnings before income taxes were as follows (in thousands):
1995 1994 1993
------- ------- ------
Domestic $ 1,941 $ 8,406 $4,540
Foreign 12,600 2,983 625
------- ------- ------
Total $14,541 $11,389 $5,165
======= ======= ======
Income tax expense was as follows (in thousands):
Current: 1995 1994 1993
------- ------- ------
Federal $ 2,019 $ 2,837 $1,394
State and local 651 898 630
Foreign 3,629 1,390 277
------- ------- ------
6,299 5,125 2,301
Deferred (benefit) (1,098) (680) (492)
------- ------- ------
$ 5,201 $ 4,445 $1,809
======= ======= ======
For the year ended December 31, 1995, approximately $24,000 was credited
to Additional Paid-In Capital to record the tax benefit of dividends paid on
restricted stock. Additional Paid-In Capital was also credited for
approximately $36,000 for the tax effect of the change in value from the award
date to the release date of restricted stock which was released during the
period.
(continued)
Page 26 of 38
7
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(6) Income Taxes, continued
-------------
A reconciliation of the statutory Federal income tax rate with the
effective income tax rate follows:
1995 1994 1993
---- ---- ----
Statutory Federal income tax rate 34% 34% 34%
Increase(decrease) resulting from:
Tax exempt earnings of subsidiaries in
Puerto Rico (2) (5) (14)
State and local income taxes, net of
federal benefit 3 6 10
Non-deductable expenses 1 1 2
Foreign (3) (1) 1
Other, net 3 4 2
-- -- --
Effective tax rate 36% 39% 35%
== == ==
Deferred tax assets and liabilities included the following (in thousands):
Assets: 1995 1994
Inventories, principally due to additional costs
valued for tax purposes $ 596 $ 500
Vacation pay and other compensation 396 162
Pension expense 573 1,158
Stock awards 845 637
Accrued liabilities 2,187 549
Other 97 131
------ ------
Total deferred tax assets $4,694 $3,137
====== ======
Liabilities:
Plant and equipment, principally due to
differences in depreciation $ 109 $ 194
Local tax on Puerto Rico-sourced income 36 74
Other 417 460
------ ------
Total deferred tax liabilities $ 562 $ 728
------ ------
Net deferred tax asset $4,132 $2,409
====== ======
Based on the Company's history of taxable income and its projection of
future earnings, management believes that it is more likely than not that
sufficient taxable income will be generated in the foreseeable future to
realize the deferred tax assets.
(continued)
Page 27 of 38
8
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(7) Commitments and Contingencies
-----------------------------
Lease Commitments
The Company conducts a portion of its operations from leased premises and
also leases certain equipment under operating leases.
Total rental expense for the years ended December 31, 1995, 1994 and 1993
was $1,795,000, $1,483,000 and $1,183,000, respectively. The aggregate minimum
rental commitments under non-cancellable leases in effect at December 31, 1995
are as follows (in thousands):
Year ending
December 31
-------------
1996 $ 3,083
1997 2,808
1998 2,277
1999 2,176
2000 2,014
Thereafter 9,227
-------
$21,585
=======
Environment
The Company is involved in several legal actions relating to waste
disposal sites. The Company's involvement in these matters has generally
arisen from the alleged disposal by licensed waste haulers of small amounts of
waste material many years ago. The Company has established reserves which it
believes are adequate for its expected future liability in these matters.
(continued)
Page 28 of 38
9
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(8) Shareholders' Equity
--------------------
Changes were as follows (in thousands):
<TABLE>
<CAPTION>
Additional
Common paid-in Treasury Unearned
stock capital stock compensation
------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $ 373 3,784 4,658 632
Stock award of 18,630 shares, net of forfeitures -- 129 (30) 159
Compensation under Restricted Stock Plan -- -- -- (306)
Net tax benefit of dividends paid on restricted stock
and the difference in value between grant date and
date of vesting -- 13 -- --
------ ------ ----- ---
Balance at December 31, 1993 $ 373 3,926 4,628 485
Stock award of 34,985 shares, net of forfeitures -- 360 (55) 414
Compensation under Restricted Stock Plan -- -- -- (339)
Net tax benefit of dividends paid on restricted stock
and the difference in value between grant date
and date of vesting -- 43 -- --
200% stock dividend recorded on
September 18, 1994. 745 -- -- --
------ ------ ----- ---
Balance at December 31, 1994 $1,118 4,329 4,573 560
Stock issued in connection with the acquisition
of Pulse 223 29,009 -- --
Stock options assumed -- 3,105 -- --
Stock options exercised 1 68 -- --
Stock award of 24,545 shares, net of forfeitures -- 336 (38) 375
Compensation under Restricted Stock Plan -- -- -- (238)
Net tax benefit of dividends paid on restricted stock
and the difference in value between grant date and
date of vesting -- 60 -- --
------ ------ ----- ---
Balance at December 31, 1995 $1,342 36,907 4,535 697
====== ====== ===== ===
</TABLE>
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 relevant share and per share amounts
have been restated to retroactively reflect the stock split.
The cumulative translation adjustment was $773,000, $480,000, and
$885,000 at December 31, 1995, 1994 and 1993, respectively.
(continued)
Page 29 of 38
10
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(9) Employee Benefit Plans
The Company and its subsidiaries maintain defined benefit pension
plans and make contributions to multi-employer plans covering certain union
employees. Certain non-U.S. subsidiaries have varying types of retirement
plans providing benefits for substantially all of their employees.
Pension expense was as follows (in thousands):
1995 1994 1993
------ ------ ------
Principal defined benefit plans $1,449 $1,310 $ 932
Contributions to multi-employer and other plans 176 201 170
Other non-U.S. plans 34 160 --
------ ------ ------
$1,659 $1,671 $1,102
====== ====== ======
The expense for the principal defined benefit pension plans include
the following components (in thousands):
1995 1994 1993
------ ------ ------
Service cost - benefits earned during the period $1,369 $1,286 $ 963
Interest cost on projected benefit obligation 1,319 1,206 991
Actual return on plan assets (3,867) (124) (1,585)
Net amortization and deferral 2,628 (1,058) 563
------ ------ ------
Net periodic pension cost $1,449 $1,310 $ 932
====== ====== ======
The financial status of the principal defined benefit plans at
December 31, was as follows (in thousands):
1995 1994
------- -------
Actuarial present value of obligations:
Accumulated benefit obligation (including vested
benefits of $11,990,000 in 1995 and $10,863,000
in 1994) $13,653 $12,401
------- -------
Projected benefit obligation for services to date 20,404 18,499
Plan assets at fair value 20,261 15,446
------- -------
Plan assets (less than) projected benefit obligation (143) (3,053)
Unrecognized net (gain) from past experience different
from that assumed. (3,661) (1,206)
Prior service costs not yet recognized 559 612
Unrecognized net obligation at January 1, 1987 being
recognized over 18 years 31 35
------- -------
Accrued pension costs at December 31 $(3,214) $(3,612)
======= =======
(continued)
Page 30 of 38
11
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(9) Employee Benefit Plans, continued
-----------------------
Benefits are based on years of service and average final compensation.
For U.S. plans, the Company funds, annually, at least the minimum amount
required by the Employee Retirement Income Security Act of 1974. Plan
assets consist principally of short-term investments and listed bonds and
stocks. Assumptions used to develop data for 1995 and 1994 were as
follows:
Discount rates 7.25 to 7.5%
Annual compensation increases 4.75 to 7.0%
Expected long-term rates of return on plan assets 7.50 to 9.0%
The Company maintains defined contribution 401(k) plans covering
substantially all U.S. employees not affected by certain collective
bargaining agreements. Under the primary 401(k) plan, the Company
contributes a matching amount equal to $.50 for each $1.00 of the
participant's contribution not in excess of 3% of the participant's annual
wages. The total contribution expense under the 401(k) plans was $319,000,
$165,000 and $177,000 in 1995, 1994, and 1993, respectively.
The Company does not provide any significant post-retirement benefits
other than the pension plans and 401(k) plans described above.
(10) Quarterly Financial Data (Unaudited)
------------------------------------
Quarterly results of operations (unaudited) for 1995 and 1994 are
summarized as follows (in thousands, except per share data):
Quarter ended
-------------
Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- -------
1995:
Net sales $40,043 $39,394 $35,940 $61,042
Gross profit 11,390 12,657 10,446 21,161
Net earnings 1,692 2,020 1,673 3,955
Net earnings per share .28 .33 .28 .49
1994:
Net sales $34,960 $37,816 $36,591 $37,077
Gross profit 10,329 11,206 10,850 10,963
Net earnings 1,370 1,742 1,884 1,948
Net earnings per share .23 .29 .31 .32
The shares issued and options assumed in connection with the Pulse
acquisition affected the weighted average shares outstanding used for
calculating earnings per share in 1995. Refer to Note 2 for additional
information.
(continued)
Page 31 of 38
12
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(11) Stock-Based Compensation
The Company has an incentive compensation plan for key employees of
the Company and its subsidiaries. The Plan grants the recipient the right
of ownership of Technitrol, Inc. common stock, conditional on the
attainment of defined performance goals and/or continued employment with
the Company. A summary of the shares under the incentive compensation plan
is as follows:
Awarded,
Available to Not Yet
be Granted Released
------------ --------
Shares authorized 600,000
Awarded during years prior to 1995 (377,510) 377,510
Shares released to recipients prior to 1995 (197,810)
------- --------
Balance at December 31, 1994 222,490 179,700
Awarded during 1995, net 24,545
Shares released to recipients during 1995 (41,955)
------- -------
Balance at December 31, 1995 197,945 137,745
======= =======
During the years ended December 31, 1995, 1994 and 1993, the Company
issued to employees, net of cancellations, Incentive Compensation Shares
having an approximate fair value at date of issue of $375,000, $414,000 and
$159,000, respectively. Shares are held by the Company until the defined
performance goals and/or continued employment requirement have been
attained. The market value of the shares at the date of grant is charged
to expense during the vesting period on a straight-line basis. Amounts
charged to expense as a result of the incentive compensation plan and
related expenses were $1,517,000 in 1995, $994,000 in 1994 and $658,000 in
1993.
Separately, in connection with the Pulse acquisition, options which
had been granted for the purchase of Pulse common shares were assumed by
the Company and converted into options to purchase Technitrol common stock.
Additional information about the options assumed is provided in Note 2. At
December 31, 1995, 265,000 options remained outstanding. No additional
options are expected to be granted under the assumed plans.
(continued)
Page 32 of 38
13
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(12) Supplementary Information,
--------------------------
Charged directly to costs and expenses (in thousands):
1995 1994 1993
------ ----- ------
Depreciation $5,828 $5,016 $4,901
Amortization of intangible assets 417 255 90
Advertising 1,118 1,159 1,117
Repairs and maintenance 2,540 1,936 1,162
Bad debt expense 109 114 76
Cash payments made (in thousands):
Income taxes $3,559 $3,663 $1,320
Interest 1,428 1,058 389
(13) Segment Information
-------------------
The "Industry Segment Information" and "Geographic Information"
sections on pages 2, 3 and 4 of this Form 10-K is an integral part of the
Company's financial statements.
(14) Subsequent Event
----------------
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 $3.6 million and the pre-tax gain realized on the sale
(after recognition of related costs and expenses) approximated $1.5 million.
Page 33 of 38
TECHNITROL, INC. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands of dollars)
<TABLE>
<CAPTION>
Additions (Deductions)
---------------------------------------
Charged to Write-offs
Balance costs and & Balance
Description January 1 expenses payments Other December 31
- ----------------------------- --------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Reserve for obsolete and
slow-moving inventory $ -- $ 441 $ (384) $2,955(1) $3,012
====== ======= ======= ====== ======
</TABLE>
(1) This amount represents the acquired reserve of Pulse Engineering, Inc.
The additions and deductions to the reserve represents Pulse's 1995
activity subsequent to its acquisition by Technitrol.
Doubtful accounts are written-off as identified.
Page 34 of 38
EXHIBIT INDEX
DOCUMENT
- --------
3. (a) Articles of Incorporation Filed herewith
(b) By-laws Filed herewith
4. Instruments defining rights of Incorporated by reference to
security holders Form 10-K for the year ended
December 31, 1982.
11. Computation of Primary and Fully
Diluted Earnings Per Share Page 36
21. Subsidiaries of Registrant Page 37
23. Consent of Certified Public
Accountants Page 38
27. Financial Data Schedule Electronic Filing Only
Page 35 of 38
EXHIBIT (11) COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
--------------------------------- --------------------------------
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $3,955,000 $1,948,000 $9,340,000 $6,944,000
Primary earnings per share:
Weighted average number of common
shares outstanding 7,833,640 6,015,156 6,488,907 6,015,156
Add: Shares arising from the assumed
exercise of stock options (as determined
under the Treasury Stock Method) 197,168 -- 49,292 --
---------- ---------- --------- ----------
Weighted average of common and
equivalent shares 8,030,808 6,015,156 6,538,199 6,015,156
========== ========== ========== ==========
Primary earnings per share $ 0.49 $ 0.32 $ 1.43 $ 1.15
========== ========== ========== ==========
Fully diluted earnings per share (1):
Weighted average of common and
equivalent shares outstanding (as
determined for the Primary earnings
per share calculation above) 8,030,808 6,015,156 6,538,199 6,015,156
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 8,030,808 6,015,156 6,538,199 6,015,156
========== ========== ========== ==========
Fully diluted earnings per share $ 0.49 $ 0.32 $ 1.43 $ 1.15
========== ========== ========== ==========
</TABLE>
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 36 of 38
EXHIBIT (21) SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
Technitrol, Inc., which has no parent, has the following subsidiaries:
Name Incorporation Percent Owned
- ----------------------------------- ----------------------- -------------
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%
Technitrol Investments, Inc. Delaware 100%
Fil-Mag Taiwan Corporation Taiwan 100%
Fil-Mag Philippines Corporation Philippines 100%
Pulse Engineering, Inc. Delaware 100%
Pulse Engineering Distribution, Ltd. Ireland 100%
Pulse Electronics, Ltd. Hong Kong 100%
Dongguan Pulse Electronics Co., Ltd. Peoples Republic of China 100%
Page 37 of 38
Consent of Independent Certified Public Accountants
The Board of Directors
Technitrol, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-8 of Technitrol, Inc. of our report dated March 1, 1996, relating to
the consolidated balance sheets of Technitrol, Inc. and subsidiaries as of
December 31, 1995 and 1994 and the related consolidated statements of
earnings and retained earnings and cash flows for each of the years in the
three-year period ended December 31, 1995, which report appears in the
December 31, 1995 annual report on Form 10-K of Technitrol, Inc.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 20, 1996
Page 38 of 38
ARTICLES
OF
TECHNITROL, INC.
FIRST: The name of the corporation is TECHNITROL, INC.
SECOND: The purposes for which the corporation is organized are as
follows: To manufacture or otherwise produce, use, buy, sell and otherwise
deal in goods, wares, merchandise, and other articles of commerce and
personal property of every kind and nature including electrical, electronic
and mechanical equipment.
To acquire by purchase, lease, grant, gift, devise, bequest, exchange
of securities or property, or otherwise, any property, real or personal,
and any interest therein, including the business, good-will, rights and
assets of any person, partnership, association or corporation engaged in
any lawful business.
To hold, own, improve, develop, lease, sell, mortgage, pledge and
otherwise deal in, invest in and dispose of, any property, real or
personal, and any interest therein, including the business, good-will,
rights and assets of any person, partnership, association or corporation
engaged in any lawful business.
THIRD: The location and post office address of the registered office
of the corporation in the Commonwealth of Pennsylvania is 1952 East
Allegheny Avenue, Philadelphia, Pennsylvania 19134.
FOURTH: The corporation is to exist perpetually.
FIFTH: The aggregate number of shares which the corporation shall
have authority to issue is Thirty Million (30,000,000) shares of Common
Stock; the par value of said common stock shall be $.125 per share.
SIXTH: The directors of the Corporation shall be divided into three
classes, namely, Classes I, II and III, with each class consisting of not
less than one nor more than three directors, as determined in accordance
with the By-Laws of the Corporation. Class I directors elected at the 1977
annual meeting of shareholders shall initially serve until the next annual
meting following their election and until their successors shall be elected
and qualified. Class II directors elected at the 1977 annual meeting of
shareholders shall initially serve until the second annual meeting
following their election and until their successors shall be elected and
qualified. Class III directors elected at the 1977 annual meeting of
shareholders shall initially serve until the third annual meeting following
their election and until their successors shall be elected and qualified.
At each annual meeting of shareholders commencing with the 1978 annual
meeting, the successors to any class of directors whose terms shall then
expire shall be elected to serve three year terms. Directors elected as
hereinbefore provided may not be removed prior to the expiration of their
respective terms of office without cause.
Notwithstanding any provision of this Amended and Restated Articles of
Incorporation to the contrary, (1) no amendment to this Amended and
Restated Articles of Incorporation shall amend, alter, change or repeal any
provision of this Article SIXTH except upon the affirmative vote of the
holders of at least seventy-five percent of the outstanding shares of all
classes of capital stock of the Corporation entitled to vote thereon, and
(2) no amendment to this Amended and Restated Articles of Incorporation
shall be adopted empowering shareholders to remove directors without cause
except upon the affirmative vote of the holders of at least seventy-five
percent of the outstanding shares of all classes of capital stock of the
Corporation entitled to vote thereon.
SEVENTH: Except as set forth below, the affirmative vote of the
holders of at least seventy-five percent of the outstanding shares of all
classes of capital stock of the Corporation entitled to vote thereon, shall
be required in order to authorize or adopt (a) any agreement for the merger
or consolidation of the Corporation with or into any other corporation
which is required by law to be approved by shareholders, (b) any sale,
lease, transfer or other disposition by the Corporation of all or any
substantial part of the assets of the Corporation to any other corporation,
person or other entity, or (c) any issuance or delivery of securities of
the Corporation in exchange or payment for any securities, properties or
assets of any other person in a transaction in which the authorization or
approval of shareholders of the Corporation is required by law or by any
agreement to which the Corporation is a party, if as of the record date for
the determination of shareholders entitled to notice thereof and to vote
thereon or consent thereto, such other corporation, person or entity which
is a party to such transaction is the beneficial owner, directly or
indirectly, of more than 5% of the outstanding shares of stock of the
Corporation.
For purposes of this Article SEVENTH, (a) any corporation, person or
other entity shall be deemed to be the beneficial owner of any shares of
stock of the Corporation (i) which it owns directly, whether or not of
record, or (ii) which it has the right to acquire pursuant to any agreement
or understanding or upon exercise of conversion rights, warrants or
options, or otherwise, or (iii) which are beneficially owned, directly or
indirectly (including shares deemed owned through application of clause
(ii) above), by an "affiliate" or "associate" (as defined below), or (iv)
which are beneficially owned, directly or indirectly (including shares
deemed owned through application of clause (ii), above) by any other
corporation, person or entity with which it or its "affiliate" or
"associate" has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of stock of the Corporation, and
(b) the outstanding shares of any class of stock of the Corporation shall
include shares deemed owned through application of clauses (a) (ii), (iii)
and (iv), above, but shall not include any other shares which may be
issuable pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise.
The term "affiliate" is defined as:
An "affiliate" of, or a person "affiliated" with, a specified person,
is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, the persons specified.
The term "associate" is defined as:
The term "associate" used to indicate a relationship with any person,
means (1) any corporation or organization (other than this Corporation or a
majority-owned subsidiary of this Corporation) of which such person is an
officer or partner or is directly or indirectly, the beneficial owner of
10% or more of any class of equity securities, (2) any trust or other
estate in which such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar fiduciary capacity, and
(3) any relative or spouse of such person, or any relative of such spouse,
who has the same home as such person or who is a director or officer of
this Corporation or any of its parents or subsidiaries.
The provisions of this Article SEVENTH shall not be applicable to (i)
any merger or consolidation of the Corporation with or into any other
corporation, or any sale or lease of all or any substantial part of the
assets of the Corporation to any other corporation, person or other entity,
if the Board of Directors of the Corporation shall by resolution have
approved a memorandum of understanding, letter of intent or agreement with
such other corporation, person or entity with respect to and substantially
consistent with such transaction, prior to the time that such other
corporation, person or entity shall have become a beneficial owner of more
than 5% of the outstanding shares of stock of the Corporation; or (ii) any
merger or consolidation of the Corporation with, or any sale of the
Corporation or any subsidiary thereof of any of the assets of, any
corporation of which a majority of the outstanding shares of stock is owned
of record or beneficially by the Corporation and its subsidiaries.
The Board of Directors shall have the power and duty to determine for
the purposes of this Article SEVENTH, on the basis of information known to
the Corporation, whether (i) such other corporation, person, or other
entity beneficially owns more than 5% of the outstanding shares of stock of
the Corporation, (ii) such corporation, person or entity is an "affiliate"
or "associate" (as defined above) of another, and (iii) the memorandum of
understanding, letter of intent or agreement referred to above is
substantially consistent with the transaction covered thereby. Any such
determination shall be conclusive and binding for all purposes of this
Article SEVENTH.
No amendment to the Articles of Incorporation of the Corporation shall
amend, alter, change or repeal any of the provisions of this Article
SEVENTH, unless the amendment effecting such amendment, alteration, change
or repeal shall receive the affirmative vote of the holders of at least
seventy-five percent of the outstanding shares of all classes of capital
stock of the Corporation entitled to vote thereon.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof
this 27th day of September, 1995.
TECHNITROL, INC.
By /s/Thomas J. Flakoll
----------------------------
Title: Thomas J. Flakoll, President
TECHNITROL, INC.
------
BY-LAWS
------
ARTICLE I
OFFICES
Section 1. The principal office shall be at 1210 Northbrook Drive,
Suite 385, in Trevose, Commonwealth of Pennsylvania. The location of the
principal office shall, at all times, be within the limits of the
Commonwealth of Pennsylvania.
Section 2. The corporation may also have offices at such other
places, both within and without the Commonwealth of Pennsylvania; as the
board of directors may, from time to time, determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. All meetings of the shareholders shall be held in the City
of Philadelphia, Pennsylvania, or at such other places within or without
the Commonwealth of Pennsylvania as the board of directors may designate.
Section 2. The annual meeting of the shareholders shall be held in
either the months of May or June of each year on such date as may be
determined by the board of directors at least sixty days in advance of such
meeting and, in the event the board of directors fails to determine a
meeting date, the meeting shall be held on the third Wednesday of May at
4:30 P.M., if not a legal holiday and if a legal holiday then on the fourth
Wednesday of May, when they shall elect, by a plurality vote, by ballot,
such number of directors for such terms as provided in Article III, Section
1, of these by-laws, to serve until their successors are elected or chosen
and qualify, and transact such other business as may properly be brought
before the meeting.
Section 3. Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the articles of
incorporation, may be called at any time by the president, or a majority of
the board of directors, or the holders of at least twenty percent of all
the shares issued and outstanding and entitled to vote at the particular
meeting, upon written request delivered to the secretary of the
corporation. Such request shall state the purpose or purposes of the
proposed meeting. Upon receipt of any such request, it shall be the duty
of the secretary to call a special meeting of the shareholders to be held
at such time, not less than ten or more than sixty days thereafter, as the
secretary may fix. If the secretary shall neglect to issue such call, the
person or persons making the request may issue the call.
Section 4. Written notice of every meeting of the shareholders,
specifying the place, date and hour and the general nature of the business
of the meeting, shall be served upon or mailed, postage prepaid, at least
ten days prior to the meeting, unless a greater period of notice is
required by statute, to each shareholder.
Section 5. The officer having charge of the transfer books for shares
of the corporation shall prepare and make at least ten days before each
meeting of shareholders, a complete list of the shareholders entitled to
notice of the meeting and a complete list of the shareholders entitled to
vote at the meeting, arranged in alphabetical order, with the address and
the number of shares held by each which lists shall be kept on file at the
principal office of the corporation and shall be subject to inspection by
any shareholder at any time during usual business hours. Such lists shall
also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the whole time
of the meeting.
Section 6. Business transacted at all special meetings of
shareholders shall be limited to the purposes stated in the notice.
Section 7. The holders of a majority of the issued and outstanding
shares entitled to vote, present in person or represented by proxy, shall
be requisite and shall constitute a quorum at all meetings of the
shareholders for the transaction of business, except as otherwise provided
by statute or by the articles of incorporation or by these by-laws. The
shareholders present in person or by proxy at a duly convened meeting can
continue to do business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum. If, however, any
meeting of shareholders cannot be organized because a quorum has not
attended, the shareholders entitled to vote thereat, present in person or
by proxy, shall have power, except as otherwise provided by statute, to
adjourn the meeting to such time and place as they may determine, but in
the case of any meeting called for the election of directors such meeting
may be adjourned from day to day or for such longer periods not exceeding
fifteen days each as the holders of a majority of the shares entitled to
vote present in person or by proxy shall direct, and those who attend the
second of such adjourned meetings, although less than a quorum, shall
nevertheless constitute a quorum for the purpose of electing directors. At
any adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting
as originally notified.
Section 8. When a quorum is present or represented at any meeting,
the vote of the holders of a majority of the shares having voting powers,
present in person or represented by proxy, shall decide any question
brought before such meeting, unless the question is one upon which, by
express provision of the statutes or of the articles of incorporation or of
these by-laws, a different vote is required in which case such express
provision shall govern and control the decision of such question.
Section 9. Each shareholder shall at every meeting of the
shareholders be entitled to one vote in person or by proxy for each share
having voting power held by such shareholder, but no proxy shall be voted
on or after three years from its date, unless coupled with an interest,
and, except where the transfer books of the corporation have been closed or
a date has been fixed as a record date for the determination of its
shareholders entitled to vote, transferees of shares which are transferred
on the books of the corporation within ten days next preceding the date of
such meeting shall not be entitled to vote at such meeting. In each
election for directors, every shareholder entitled to vote shall have the
right, in person or by proxy, to multiply the number of votes to which he
may be entitled by the total number of directors to be elected in the same
election, and he may cast the whole number of such votes for one candidate
or he may distribute them among any two or more candidates. The candidates
receiving the highest number of votes up to the number of directors to be
elected shall be elected.
Section 10. In advance of any meeting of shareholders, the board of
directors may appoint judges of election, who need not be shareholders, to
act at such meeting or any adjournment thereof. If judges of election be
not so appointed, the chairman of any such meeting may and, on the request
of any shareholder entitled to vote or his proxy, shall make such
appointment at the meeting. The number of judges shall be one or three.
If appointed at a meeting on the request of one or more shareholders
entitled to vote or proxies, the majority of shares present and entitled to
vote shall determine whether one or three judges are to be appointed. No
person who is a candidate for office shall act as a judge. The judges of
election shall do all such acts as may be proper to conduct the election or
vote with fairness to all shareholders, and shall make a written report of
any matter determined by them and execute a certificate of any fact found
by them, if requested by the chairman of the meeting or any shareholder
entitled to vote or his proxy. If there be three judges of election the
decision, act or certificate of a majority, shall be effective in all
respects as the decision, act or certificate of all.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the board
shall be at least six and not more than nine. The directors shall be
divided into three classes, namely, Classes I, II and III, with each class
consisting of at least two directors and not more than three. At each
annual meeting of shareholders, the successors to any class of directors
whose terms shall then expire shall be elected to serve three years.
Directors elected as hereinbefore provided may not be removed prior to the
expiration of their respective terms of office without cause. Subject to
the provisions of Article Sixth of the articles of incorporation, as
amended and restated, the board of directors may by a vote of not less than
a majority of the authorized directors amend this Section to increase or
decrease the number of directors constituting any class, without a vote of
the shareholders, provided, however, that any such decrease shall not
eliminate any directors then in office. Except for changing the size of
any class of directors, this Section shall not be amended, altered, changed
or repealed, notwithstanding the provisions of Article IX of these by-laws,
except as provided in Article Sixth of the articles of incorporation, as
amended and restated.
Section 2. Vacancies in any class and newly created directorships
resulting from any increase in the authorized number of directors in any
class shall be filled by a majority of the remaining number of the board,
though less than a quorum. Each person so elected shall be a director to
serve until the expiration of the term of the class to which he is elected
and until his successor is elected by the shareholders.
Section 3. The business of the corporation shall be managed by its
board of directors which may exercise all such powers of the corporation
and do all such lawful acts and things as are not by statute or by the
articles of incorporation or by these by-laws directed or required to be
exercised and done by the shareholders.
Section 4. No person shall be eligible to be nominated or elected as
a director if at the time of such nomination or election such person has
attained the age of Seventy (70) years. Any director who attains the age
of Seventy (70) years during the terms of his directorship shall be
permitted to continue to serve In such capacity for the remainder of his
then-current term and shall thereafter be ineligible for nomination or
election as a director.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the
Commonwealth of Pennsylvania.
Section 6. The board of directors shall hold a meeting at the
corporation's principal office immediately following the annual meeting of
the shareholders at which new directors are elected, unless a different
time and place shall be fixed by the shareholders at the meeting at which
the new directors were elected, and no notice of such meeting shall be
necessary to the directors in order legally to constitute the meeting,
provided a majority of the whole board shall be present. In the event such
meeting is not held at such time and place, or in the event of the failure
of the shareholders to fix a different time or place for such meeting of
the board of directors with its newly elected members, the meeting may be
held at such time and place as shall be specified in a notice given as
hereinafter provided for such meetings of the board of directors, or as
shall be specified in a written waiver signed by all of the directors.
Section 7. Regular meetings of the board of directors may be held
without notice on the third Wednesday of each month at the principal office
of the corporation or at such other time or place as shall from time to
time be determined by the board.
Section 8. Special meetings of the board may be called by the
president on one day's notice to each director, either personally or by
mail or by telegram; special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of two
directors, which request shall state the purpose or purposes of the
proposed meeting.
Section 9. At all meetings of the board a majority of the directors
in office shall be necessary to constitute a quorum for the transaction of
business, and the acts of a majority of the directors present at a meeting
at which a quorum is present shall be the acts of the board of directors,
except as may be otherwise specifically provided by statute or by the
articles of incorporation.. One or more directors may participate in a
meeting of the board of directors by means of a conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other. If a quorum shall not be
present at any meeting of directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 10. If all the directors shall severally or collectively
consent in writing to any action to be taken by the corporation, such
action shall be as valid a corporate action as though it had been
authorized at a meeting of the board of directors.
Section 11. In the event a national disaster or national emergency is
proclaimed by the President or Vice President of the United States, the
directors, even though there may be less than a quorum present, may take
all actions which they could have taken if a quorum had been present.
Section 12. The board of directors shall immediately after each
annual meeting of shareholders (or at any regular or special meeting should
the need arise by resignation, death or otherwise of the then current
chairman), elect from among its members a chairman of the board. The
chairman of the board shall not be an officer of the corporation but shall
preside at all meetings of the board of directors and shall undertake such
other duties as the board of directors may from time to time prescribe.
COMMITTEE
Section 13. The board of directors may, by resolution passed by a
majority of the whole board, designate two or more of its number to
constitute an executive committee which, to the extent provided in such
resolution shall have and exercise the authority of the board of directors
in the management and business of the corporation. Vacancies in the
membership of the committee shall be filled by the board of directors at a
regular or special meeting of the board of directors. The executive
committee shall keep regular minutes of its proceedings and report the same
to the board when required.
Section 14. By resolution passed by a majority of the whole board,
the board of directors may establish such other committees for such other
purposes which the board deems advisable. Vacancies in the membership on
such other committees shall be filled by the board of directors at a
regular on special meeting of the board of directors. Such other
committees shall keep regular minutes of their proceedings and report the
same to the board when required.
COMPENSATION OF DIRECTORS
Section 15. Compensation of directors shall be in such amounts as may
be determined from time to time by resolution of the board of directors.
Such compensation may include, in addition to expenses of attendance if
any, a stated fee for each regular or special meeting of the board attended
by a director as well as an annual retainer to be paid to each director if
the board of directors so determines. Members of the executive committee
or of any standing or special committee may, by resolution of the board, be
allowed such additional compensation for their services on such committees
as the board may from time to time determine. Nothing herein shall be
construed to preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
ARTICLE IV
NOTICES
Section 1. Notices to directors and shareholders shall be in writing
and delivered personally or mailed to the directors or shareholders at
their addresses appearing on the books of the corporation. Notice by mail
shall be deemed to be given at the time when the same shall be mailed.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the articles of incorporation or of these
by-laws, a waiver thereof in writing signed by the person or persons
entitled to said notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a chief executive officer, a president, a
vice president, a secretary and a treasurer. The board of directors may
also choose an executive vice president, additional vice presidents and one
or more assistant secretaries and assistant treasurers. Any two of the
aforesaid offices, except those of the president and executive vice
president, president and vice president or president and secretary, may be
held by the same person.
Section 2. The board of directors, immediately after each annual
meeting of shareholders, shall elect a chief executive officer, a
president, each of whom may, but need not, be a director, and the board
shall also annually choose a secretary, a treasurer and such assistant
secretaries and other vice presidents, none of which need be members of the
board of directors.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors..
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed
by the board of directors may be removed at any time by the affirmative
vote of a majority of the board of directors. Any vacancy occurring in any
office of the corporation shall be filled by the board of directors.
CHIEF EXECUTIVE OFFICER
Section 6. The chief executive officer shall be the corporation's
most senior officer, be responsible for the implementation of strategies,
policies and resolutions adopted by the board of directors and shall
perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
THE PRESIDENT
Section 7. The president shall be the chief operating officer of the
corporation, shall have general and active management of the day-to-day
operations of the corporation.
Section 8. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required
or permitted by law to be otherwise signed and executed and except where
the signing and execution thereof shall be expressly delegated by the board
of directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 9. The executive vice-president, if one be appointed, shall
have such powers and perform such duties as the board of directors or the
president may from time to time prescribe, and shall perform such other
duties as may be prescribed in these by-laws. He shall exercise all the
powers and discharge all the duties of the president during the latter's
absence or inability to act and shall have power to sign all deeds,
contracts and instruments authorized by the board of directors unless they
otherwise direct.
The vice-president, or if there be more than one, the vice-presidents
in the order of length of service unless otherwise determined by the board
of directors, shall, in the absence or disability of the president or
executive vice-president, perform the duties and exercise the powers of the
president, and shall perform such other duties and have such other powers
as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 10. The secretary shall attend all meetings of the board of
directors and all meetings of the shareholders and record all the
proceedings of the meetings of the corporation and of the board of
directors in a book to be kept for that purpose and shall perform like
duties for the executive committee when required. He shall give, or cause
to be given, notice of all meetings of the shareholders and special
meetings of the board of directors, and shall perform such other duties as
may be prescribed by the board of directors or president, under whose
supervision he shall be. He shall keep in safe custody the seal of the
corporation and affix the same to any instrument requiring it and, when so
affixed, it shall be attested by his signature or by the signature of an
assistant secretary.
Section 11. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the board of
directors, shall, in the absence or disability of the secretary, perform
the duties and exercise the powers of the secretary and shall perform such
other duties and have such other powers as the board of directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 12. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the corporation and shall deposit
all money and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of
directors.
Section 13. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements and shall render to the president and the board of directors,
at its regular meetings, or when the board of directors so requires, an
account of all his transactions as treasurer and of the financial condition
of the corporation.
Section 14. If required by the board of directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the corporation.
Section 15. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of
directors shall, in the absence or disability of the treasurer, perform the
duties and exercise the powers of the treasurer and shall perform such
other duties and have such other powers as the board of directors may from
time to time prescribe.
ARTICLE VI
CERTIFICATES OF SHARES
Section 1. The certificates of shares of the corporation shall be
numbered and registered in a share register as they are issued. They shall
exhibit the name of the registered holder and the number and class of
shares or a statement that such shares are without par value as the case
may be.
Section 2. Every share certificate shall be signed by the president
and the secretary and shall be sealed with the corporate seal which may be
facsimile, engraved or printed.
Section 3. Where a certificate is signed (1) by a transfer agent or
(2) by a transfer agent and/or registrar, the signature of such president
and secretary may be facsimile. In case any officer or officers who have
signed or whose facsimile signature or signatures have been used on any
such certificate or certificates shall cease to be such officer or officers
of the corporation, whether because of death, resignation or otherwise,
before such certificate or certificates have been delivered by the
corporation, such certificate or certificates may nevertheless be adopted
by the corporation and be issued and delivered as though the person or
persons who signed such certificate or certificates or whose facsimile
signature or signatures have been used thereon had not ceased to be such
officer or officers of the corporation.
LOST OR DESTROYED CERTIFICATES
Section 4. The board of directors shall direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, destroyed
or wrongfully taken, upon the making of an affidavit of that fact by the
person claiming the share certificate to be lost, destroyed or wrongfully
taken. when authorizing such issue of a new certificate or certificates,
the board of directors may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such lost, destroyed or
wrongfully taken certificate or certificates, or his legal representative,
to advertise the same in such manner as it shall require and give the
corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the corporation with respect to the
certificate or certificates alleged to have been lost, destroyed or
wrongfully taken.
TRANSFER OF SHARES
Section 5. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it
shall be the duty of the corporation to issue a new certificate to the
person entitled thereto, cancel the old certificate and record the
transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 6. The board of directors may fix a time, not more than
seventy-five days, prior to the date of any meeting of shareholders or the
date fixed for the payment of any dividend or distribution or the date for
the allotment of rights or the date when any change or conversion or
exchange of shares will be made or go into effect, as a record date for the
determination of the shareholders entitled to notice of and to vote at any
such meeting or entitled to receive payment of any such dividend or
distribution or to receive any such allotment of rights or to exercise the
rights in respect to any such change, conversion or exchange of shares. In
such case only such shareholders as shall be shareholders of record on the
date so fixed shall be entitled to notice of and to vote at such meeting or
to receive payment of such dividend or to receive such allotment of rights
or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after any record
date so fixed. The board of directors may close the books of the
corporation against transfers of shares during the whole or any part of
such period and in such case written or printed notice thereof shall be
mailed at least ten days before the closing thereof to each shareholder of
record at the address appearing on the records of the corporation or
supplied by him to the corporation for the purpose of notice.
REGISTERED SHAREHOLDERS
Section 7. The corporation shall be entitled to treat the holder of
record of any share or shares as the holder in fact thereof and shall not
be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, and shall not be liable for any
registration or transfer of shares which are registered or to be registered
in the name of a fiduciary or the nominee of a fiduciary unless made with
actual knowledge that a fiduciary or nominee of a fiduciary is committing a
breach of trust in requesting such registration or transfer, or with
knowledge of such facts that its participation therein amounts to bad
faith.
ARTICLE VII
INDEMNIFICATION, INSURANCE AND LIMITATION OF DIRECTORS' LIABILITY
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
Section 1. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys, fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contenders or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorneys, fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation. No such indemnification against expenses
shall be made, however, in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and
only to the extent that the Court of Common Pleas of the county in which
the registered office of the corporation is located or the court in which
such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expenses which the Court of Common Pleas or such other court shall
deem proper.
Section 3. Indemnification under Sections 1 and 2 of this Article
shall be made by the corporation when ordered by a court or upon a
determination that indemnification of the director or officer is proper in
the circumstances because he has met the applicable standard of conduct set
forth in those Sections. Such determination shall be made (1) by the board
of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion or
(3) by the stockholders.
Section 4. In addition to and notwithstanding the limited
indemnification provided in Sections 1, 2 and 3 of this Article, the
corporation shall indemnify and hold harmless its present and future
officers and directors of, from and against any and all liability, expenses
(including attorneys' fees), claims, judgments, fines and amounts paid in
settlement, actually incurred by such person in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including but not limited to any
action by or in the right of the corporation), to which such person is, was
or at any time becomes, a party, or is threatened to be made a party, by
reason of the fact that such person is, was or at any time becomes, a
director or officer of the corporation, or is or was serving or at any time
serves at the request of the corporation, as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
person of any nature whatsoever. Nothing contained in this Section 4 shall
authorize the corporation to provide, or entitle any officer or director to
receive, indemnification for any action taken, or failure to act, which
action or failure to act is determined by a court to have constituted
willful misconduct or recklessness.
Section 5. Expenses incurred in defending a civil or criminal action,
suit or proceeding of the kind described in Sections 1, 2 and 4 of this
Article shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking, by or on behalf of the person who may be entitled to
indemnification under those Sections, to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation.
Section 6. The indemnification, advancement of expenses and
limitation of liability provided in this Article shall continue as to a
person who has ceased to be a director or officer of the corporation and
shall inure to the benefit of the heirs, executors and administrators of
such a person.
Section 7. Nothing herein contained shall be construed as limiting
the power or obligation of the corporation to indemnify any person in
accordance with the Pennsylvania Business Corporation Law as amended from
time to time or in accordance with any similar law adopted in lieu thereof.
The indemnification and advancement of expenses provided under this Article
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any
agreement, vote of shareholders or directors, or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding that office.
Section 8. The corporation shall also indemnify any person against
expenses, including attorneys, fees, actually and reasonably incurred by
him in enforcing any right to indemnification under this Article, under the
Pennsylvania Business Corporation Law as amended from time to time or under
any similar law adopted in lieu thereof.
Section 9. Any person who shall serve as director, officer, employee
or agent of the corporation or who shall serve, at the request of the
corporation, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
be deemed to do so with,knowledge of and in reliance upon the rights of
indemnification provided in this Article, in the Pennsylvania Business
Corporation Law as amended from time to time and in any similar law adopted
in lieu thereof.
INSURANCE
Section 10. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability.
LIMITATION OF DIRECTORS' LIABILITY
Section 11. No director of this corporation shall be personally
liable for monetary damages as such for any action taken, or failure to
take any action, on or after January 27, 1987, unless (a) the director has
breached or failed to perform the duties of his office under Section 8363
of Title 42 of the Pennsylvania Consolidated Statutes Annotated (relating
to the standard of care and justifiable reliance of directors); and (b) the
breach or failure to perform constitutes self dealing, willful misconduct
or recklessness; provided, however that the provisions of this Section 11
shall not apply to the responsibility or liability of a director pursuant
to any criminal statute, or the liability of a director for the payment of
taxes pursuant to local, state or federal law.
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the shares of the corporation, subject to
the provisions of the articles of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in its shares, subject to
the provisions of the articles of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper
as a reserve or reserves for contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the corporation, or for such
other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve
in the manner in which it was created.
Section 3. The directors shall send, or cause to be sent, to the
shareholders, within one hundred twenty days after the close of the fiscal
year of the corporation, a financial report as of the closing date of the
preceding fiscal year.
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed manually or by facsimile signature of such
officer or officers or such other person or persons as the board of
directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall commence on
January 1st of each year.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Corporate
Seal, Pennsylvania." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
PENNSYLVANIA BUSINESS CORPORATION LAW
Section 7. Section 4 of the Act amending the Pennsylvania Business
Corporation Law signed by Governor Thornburgh on December 23, 1983
(specifically Senate Bill No. 1144), which section provided for the
addition of a Section 910 to the Pennsylvania Business Corporation Law
shall not be applicable to the corporation in any respect.
Section 8. Subchapter G (S[section mark]2561-2567) and Subchapter H
(52571-2575) of the Pennsylvania Business Corporation Law of 1988, as
amended, shall not be applicable to the corporation in any respect.
ARTICLE IX
AMENDMENTS
Section 1. Except as otherwise provided in Article Sixth of the
articles of incorporation, as amended and restated, these bylaws may be
altered, amended or repealed by a majority vote of the shareholders
entitled to vote thereon at any regular or special meeting duly convened
after notice to the shareholders of that purpose or by a majority vote of
the members of the board of directors at any regular or special meeting
duly convened after notice to the directors of that purpose, subject always
to the power of the shareholders to change such action by the directors.
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