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Exhibit Index
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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended April 2, 1999, or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period
from ______________ to ______________.
Commission File No. 1-5375
TECHNITROL, INC.
(Exact name of registrant as specified in Charter)
PENNSYLVANIA 23-1292472
(State or other jurisdiction of incorporation (IRS Employer Identification
or organization) 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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. YES [X] NO [ ]
Common Stock - Shares Outstanding as of May 10, 1999: 16,208,156
Page 1 of 25
<PAGE>
Part I. Financial Information
Item 1: Financial Statements
Technitrol, Inc. and Subsidiaries
Consolidated Balance Sheets
April 2, 1999 and December 31, 1998
In thousands
April 2, Dec. 31,
Assets 1999 1998
------ ---- ----
(unaudited)
Current Assets:
Cash and cash equivalents $ 42,284 $ 50,563
Trade receivables 71,916 71,482
Inventories 70,899 71,230
Prepaid expenses and other current assets 15,507 10,597
-------- --------
Total current assets 200,606 203,872
Property, plant and equipment 150,838 149,035
Less accumulated depreciation 62,649 59,967
-------- --------
Net property, plant and equipment 88,189 89,068
Deferred income taxes 7,502 9,296
Excess of cost over net assets acquired, net 38,519 39,249
Other assets 2,034 2,649
-------- --------
$336,850 $344,134
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 171 $ 193
Accounts payable 24,397 23,270
Accrued expenses 72,393 78,073
-------- --------
Total current liabilities 96,961 101,536
Long-term liabilities:
Long-term debt, excluding current installments 51,854 60,705
Other long-term liabilities 6,053 7,084
Shareholders' equity:
Common stock and additional paid-in capital 46,321 45,109
Retained earnings 138,990 131,227
Other (3,329) (1,527)
-------- --------
Total shareholders' equity 181,982 174,809
-------- --------
$336,850 $344,134
======== ========
See accompanying Notes to Consolidated Financial Statements.
Page 2 of 25
<PAGE>
Technitrol, Inc. and Subsidiaries
Consolidated Statements of Earnings
(Unaudited)
In thousands, except per share data
Quarter Ended
April 2, March 31,
1999 1998
---- ----
Net sales $125,230 $110,748
Costs and expenses applicable to sales
Cost of goods sold 87,091 74,606
Selling, general and administrative expenses 25,330 20,836
-------- --------
Total costs and expenses applicable to sales 112,421 95,442
-------- --------
Operating profit 12,809 15,306
Other income (expense)
Interest, net (699) (45)
Other (342) 4
-------- --------
Total other income (expense) (1,041) (41)
-------- --------
Earnings before taxes 11,768 15,265
Income taxes 3,032 5,887
-------- --------
Net earnings $ 8,736 $ 9,378
======== ========
Net earnings per share:
Basic .55 .58
Diluted .54 .58
Dividends declared per share $ .06 $ .06
See accompanying Notes to Consolidated Financial Statements.
Page 3 of 25
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Technitrol, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Quarter Ended April 2, 1999 and March 31, 1998
(Unaudited)
In thousands
April 2, March 31,
1999 1998
---- ----
Cash flows from operating activities:
Net earnings $ 8,736 $ 9,378
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 3,943 3,538
Changes in assets and liabilities:
Accounts payable and accrued expenses (5,919) 3,211
Trade receivables (2,922) (4,310)
Inventories (1,286) (2,495)
Other, net 966 (305)
------- -------
Net cash provided by operating activities 3,518 9,017
------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired (787) (886)
Capital expenditures (3,845) (2,618)
------- -------
Net cash used in investing activities (4,632) (3,504)
------- -------
Cash flows from financing activities:
Dividends paid (973) (847)
Proceeds of long-term borrowings 9,073 --
Principal payments of long-term debt (15,123) (506)
------- -------
Net cash used in financing activities (7,023) (1,353)
------- -------
Net effect of exchange rate changes on cash (142) (93)
------- -------
Net increase (decrease) in cash and cash equivalents (8,279) 4,067
Cash and cash equivalents at beginning of year 50,563 48,803
------- -------
Cash and cash equivalents at April 2, 1999 and
March 31, 1998 $42,284 $52,870
======= =======
See accompanying Notes to Consolidated Financial Statements.
Page 4 of 25
<PAGE>
<TABLE>
<CAPTION>
Technitrol, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
April 2, 1999
(Unaudited)
In thousands, except per share data
Other
-----------------------------
Accumu-
Common stock and lated other
paid-in capital Deferred compre- Compre-
-------------------- Retained compen- hensive hensive
Shares Amount earnings sation income income
------ ------ -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 16,170 $45,109 $131,227 $(1,792) $ 265
Stock options, awards and related
compensation 39 921 (702)
Tax benefit of stock compensation 291
Currency translation adjustments (1,100) $(1,100)
Net earnings 8,736 8,736
-------
Comprehensive income $7,636
=======
Dividends declared ($.06 per share) (973)
------ ------- -------- ------- -------
Balance at April 2, 1999 16,209 $46,321 $138,990 $(2,494) $ (835)
====== ======= ======== ======= =======
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
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<PAGE>
Technitrol, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(1) Accounting Policies
-------------------
For a complete description of the accounting policies of Technitrol,
Inc. and its consolidated subsidiaries ("the Company"), refer to Note 1 of Notes
to Consolidated Financial Statements included in the Company's Form 10-K filed
for the year ended December 31, 1998.
The results for the quarter ended April 2, 1999 and March 31, 1998,
have been prepared by Technitrol's management without audit by its independent
auditors. In the opinion of management, the financial statements fairly present
in all material respects the results of Technitrol's operations and the
financial position for the periods presented. To the best knowledge and belief
of Technitrol, all adjustments have been made to properly reflect income and
expenses attributable to the periods presented. All such adjustments are of a
normal recurring nature. Operating results for the quarter ended April 2, 1999
are not necessarily indicative of annual results.
(2) Acquisitions and Divestitures
-----------------------------
GTI Corporation ("GTI"): On November 16, 1998, the Company acquired all
-----------------------
of the capital stock of GTI whose principal operating unit was Valor
Electronics, Inc. ("Valor"). Valor designed and manufactured magnetics-based
components for signal processing and power transfer functions used primarily in
local area networking and also in telecommunications and broadband products. At
the time of acquisition, manufacturing operations were located in the People's
Republic of China and the Philippines. These operations are currently being
integrated into existing facilities of the Company's Electronic Components
Segment.
The total purchase price included $34.0 million paid to the former
shareholders of GTI. In addition, transaction expenses and related acquisition
costs were incurred. To complete the acquisition, the Company used approximately
$14.0 million of cash on hand, and drew down approximately $20.0 million from
approximately $137.0 million of available and previously unused bank lines of
credit.
(continued)
Page 6 of 25
<PAGE>
Technitrol, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(2) Acquisitions and Divestitures, continued
-----------------------------
The acquisition was accounted for by the purchase method of accounting
and, as such, the financial results of Valor have been included with those of
the Company beginning on November 16, 1998. A preliminary allocation of purchase
price to the assets acquired and liabilities assumed has been made using
estimated fair values that include values based on independent appraisals and
management estimates. The estimated fair value of the assets acquired and
liabilities assumed approximated $46.2 million and $18.3 million, respectively.
The excess of costs over net assets acquired approximated $5.8 million. These
estimates will be adjusted to reflect actual amounts. Any subsequent adjustments
are expected to occur during 1999 and are not expected to have a material impact
on the Company's financial position.
The estimate of liabilities assumed included approximately $4.0
million for restructuring the GTI businesses. The amount was established in
accordance with Emerging Issues Task Force Issue 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination", and is intended
to cover the estimated expenses related to integrating GTI's operations into
existing Electronic Components Segment facilities. Expenses have been, and are
expected to be, incurred primarily for terminating employees, leasehold
terminations and other related exit costs. The Company is continuing to evaluate
the total costs required to complete the planned restructuring. Actual expenses
charged to the reserve through April 2, 1999 have not been significant.
Restructuring plans are expected to be finalized during 1999.
GTI experienced significant financial difficulty prior to its
acquisition by the Company, and the Company is making significant changes in
GTI's businesses, as noted above. As a result, the Company does not believe that
the following unaudited pro forma financial information, which reflects
continuing operations only and assumes GTI was acquired on January 1, 1998, is
indicative of the results that actually would have occurred if the acquisition
had been consummated on the date indicated or which may be attained in the
future (in thousands, except for earnings per share).
Quarter Ended
March 31, 1998
--------------
Net sales $124,750
Net earnings $5,632
Diluted earnings per share $.35
(continued)
Page 7 of 25
<PAGE>
Technitrol, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(2) Acquisitions and Divestitures, continued
-----------------------------
FEE Technology, S.A. ("FEE"): On July 3, 1998, the Company purchased
-----------------------------
all of the capital stock of FEE. FEE designed and manufactured magnetic
components for telecommunications and power conversion equipment. The total
purchase price including assumed debt and transaction costs approximated $20.0
million and was funded by cash on hand. The fair value of the net assets
acquired was approximately $2.7 million resulting in goodwill of approximately
$5.8 million. The total purchase price is subject to adjustment as expenses and
details of the transaction are finalized. Adjustments to the purchase price
allocation are not expected to have a material impact on the Company's
consolidated results of operations for 1999. FEE is now part of the Electronic
Components Segment. The acquisition was accounted for by the purchase method of
accounting and, therefore, the financial results of FEE have been included with
those of the Company beginning on July 3, 1998. Historical pro forma results of
operations would not be materially different from actual results.
Certain Assets of Metales y Contactos, S.A. de C.V. ("Metales"): On
----------------------------------------------------------------
July 3, 1998, the Company, through its Metallurgical Components Segment ("MCS"),
acquired certain assets of Metales. The purchase price of Metales' assets was
not material to the Company's consolidated financial position. The results of
the Metallurgical Components Segment include the results of operating the
acquired assets from July 3, 1998.
(3) Inventories
-----------
Inventories consisted of the following (in thousands):
April 2, December 31,
1999 1998
---- ----
Finished goods $29,610 $27,376
Work in process 14,244 14,926
Raw materials and supplies 27,045 28,928
------- -------
$70,899 $71,230
======= =======
Page 8 of 25
<PAGE>
Technitrol, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(4) Derivatives and Other Financial Instruments
-------------------------------------------
At April 2, 1999, the Company had two forward contracts outstanding,
one to purchase 324,000 Irish punt and the other to purchase 81,000 British
pounds sterling. The terms of both contracts were less than 30 days. The Company
had no other financial derivative instruments. In addition, management believes
that there is no material risk of loss from changes in market rates or prices
which are inherent in other financial instruments.
(5) Earnings Per Share
------------------
Basic earnings per share are calculated by dividing earnings by the
weighted average number of common shares outstanding (excluding restricted
shares) during the period. For calculating diluted earnings per share, common
share equivalents and restricted stock outstanding are added to the weighted
average number of common shares outstanding. Common share equivalents result
from outstanding options to purchase common stock as calculated using the
treasury stock method. Such common share equivalent amounts were 34,000 at April
2, 1999 and 46,000 at March 31, 1998. Earnings per share calculations are as
follows (in thousands, except per share amounts):
Quarter Ended
April 2, March 31,
1999 1998
---- ----
Net earnings $ 8,736 $ 9,378
Basic earnings per share:
Shares 16,000 16,141
Per share amount $ .55 $ .58
Diluted earnings per share:
Shares 16,210 16,187
Per share amount $ .54 $ .58
Page 9 of 25
<PAGE>
Technitrol, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(6) Business Segment Information
----------------------------
For the quarter ended April 2, 1999, there was an immaterial amount of
intersegment revenues eliminated in consolidation. There were no intersegment
revenues in the quarter ended March 31, 1998. There has not been a material
change in segment assets from December 31, 1998 to April 2, 1999. In addition,
the basis for determining segment financial information has not changed from
1998. Specific segment data is as follows:
Quarter Ended
April 2, March 31,
1999 1998
---- ----
Net sales:
Electronic Components $ 67,754 $ 50,070
Metallurgical Components 57,476 60,678
-------- --------
Total $125,230 $110,748
======== ========
Earnings before income taxes:
Electronic Components $ 8,889 $ 10,190
Metallurgical Components 3,920 5,116
-------- --------
Operating profit 12,809 15,306
Other income (expense), net (1,041) (41)
-------- --------
Earnings before income taxes $ 11,768 $ 15,265
======== ========
Page 10 of 25
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion and analysis of our financial condition and results of
operations, as well as other sections of this report, contain certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results could differ materially. This
report should be read in conjunction with the factors set forth in our Annual
Report on Form 10-K for the year ended December 31, 1998 in Item 1 under the
caption "Factors That May Affect Our Future Results (Cautionary Statements for
Purposes of the 'Safe Harbor' Provisions of the Private Securities Litigation
Reform Act of 1995)."
Business Overview
Technitrol, Inc. is a global manufacturer of electronic and
metallurgical components. We operate two business segments: the Electronic
Components Segment and the Metallurgical Components Segment. We refer to these
segments as the ECS and the MCS.
Electronic Components Segment
The ECS provides a variety of magnetics-based components, miniature
chip inductors and modules. These components modify or filter electrical
signals. They are used primarily in local area network, Internet connectivity,
telecommunications and power-conversion products. We manufacture these products
in the United States, Ireland, France, Malaysia, Thailand, the Philippines and
the People's Republic of China. We sometimes refer to the People's Republic of
China as the PRC.
In 1993, we adopted a strategy of expanding our electronic components
business through a combination of internal growth and acquiring companies in the
local area network, telecommunications and power conversion markets, each of
which was identified as growing rapidly. Our acquisitions include:
* The Fil-Mag companies - In 1994, we acquired the Fil-Mag companies
with manufacturing locations in Taiwan and the Philippines.
* Pulse Engineering, Inc. - In 1995, we acquired Pulse Engineering,
Inc., with manufacturing locations in Ireland and China. The
addition of Pulse significantly increased the size of our ECS
business.
* The magnetic components business of Northern Telecom, Ltd. - We
completed this acquisition on November 30, 1997. The primary assets
we purchased included manufacturing plants in Malaysia and Thailand
and a design-engineering group in Canada. These assets serve
primarily the telecommunications and power markets.
* FEE Technology, S.A. - We purchased FEE on July 3, 1998. FEE
designed and manufactured magnetic components for telecommunications
and power conversion equipment. With the purchase of FEE, we
acquired manufacturing facilities in France, Thailand and Poland. We
subsequently closed FEE's Thailand facility and are in the process
of closing the facility in Poland.
Page 11 of 25
<PAGE>
* GTI Corporation - We completed the acquisition of GTI and its
subsidiary, Valor Electronics, in November 1998. Valor designed and
manufactured magnetics-based components for signal processing and
power transfer functions primarily for local area network products
and, to a much lesser extent, telecommunications and power-
conversion products. Their manufacturing facilities were located in
the PRC and the Philippines. We closed Valor's Philippine facility
and we are in the process of consolidating Valor's PRC facility into
our facilities in the PRC.
After the acquisition of Pulse in 1995, we consolidated our electronic
component businesses to form a unified business throughout the world. This
unified business operates under the Pulse name. As mentioned above, we are in
varying stages of integrating our 1998 acquisitions into Pulse. We expect these
integration efforts to be substantially completed by the end of 1999.
Metallurgical Components Segment
The MCS manufactures:
* electrical contacts and assemblies;
* contact materials;
* thermostatic bimetals;
* clad metal products; and
* precision contact subassemblies often using our plastic molding
capabilities.
We sell these components to a wide range of industrial and consumer
product manufacturers. Our products are used in a variety of applications which
affect daily living including:
* residential, commercial and industrial circuit breakers;
* motor controls;
* switches and relays;
* wiring devices;
* temperature controls;
* appliances;
* automobiles;
* telecommunications products; and
* various other electrical products.
We also perform electroplating and metal refining services. Manufacturing occurs
in the United States, Germany, Spain, Puerto Rico and Mexico.
Page 12 of 25
<PAGE>
In late 1996, we acquired the assets of Doduco GmbH to support our
strategy of increasing market share and international expansion of our
metallurgical businesses. This business, located in Germany and Spain, was then
combined with our existing metallurgical component operations in North America
and now operates globally under the name AMI Doduco.
In July of 1998, we acquired certain assets of Metales y Contactos,
S.A. de C.V. Metales designed and manufactured precious and semi-precious metal
contacts used mainly in automobiles and other durable goods. The Metales
facilities are located near Mexico City.
Liquidity and Capital Resources
Working capital at April 2, 1999 was $103.6 million, an increase of
$1.3 million from working capital of $102.3 million at December 31, 1998.
Worldwide cash on hand at April 2, 1999 was $42.3 million, approximately $8.3
million less than on December 31, 1998. Cash on hand of approximately $6.0
million was used in the first quarter to repay debt which was outstanding as of
December 31, 1998.
We believe that the combination of cash on hand, cash generated by
operations and, if necessary, additional borrowings under our credit facilities
will be sufficient to satisfy our operating cash requirements for the
foreseeable future. In addition, we may use internally generated funds and
additional borrowings for acquisitions of suitable businesses or assets.
Cash Flows from Operating Activities
Cash provided by operating activities for the quarter ended April 2,
1999 was $3.5 million. Net earnings, adjusted for non-cash depreciation and
amortization charges, were partially offset by a decrease in accounts payable
and accrued expenses and an increase in trade receivables. Payments for income
taxes and incentives contributed to the decrease in accrued expenses from
December 31, 1998.
Cash Flows from Investing Activities
Cash used by investing activities was $4.6 million during the first
quarter of 1999. Approximately $3.8 million of cash was used for capital
expenditures. The remaining balance of $.8 million represents transaction
expenses paid in 1999 for 1998 acquisitions.
We make capital expenditures to expand production capacity and to
improve our operating efficiency. We plan to continue making such expenditures.
Additionally, we may acquire other businesses or product lines to expand our
breadth and scope of operations.
With the exception of approximately $6.2 million of retained earnings
in the PRC which are restricted per PRC regulations, substantially all retained
earnings are free from legal or contractual restrictions. We have not
experienced any significant liquidity restrictions in any country in which we
operate and none are foreseen. However, foreign exchange ceilings imposed by
local governments and the sometimes lengthy approval
Page 13 of 25
<PAGE>
processes, which some foreign governments require for international cash
transfers, may delay our internal cash movements from time to time. The retained
earnings in other countries represent a material portion of our assets. We
expect to reinvest these earnings outside of the United States because we
anticipate that a significant portion of our opportunities for growth in the
coming years will be abroad. If such earnings were brought back to the United
States, significant tax liabilities could be incurred in the United States. This
could have a material unfavorable impact on our net income and cash position.
Cash Flows from Financing Activities
We repaid, net of additional borrowings of $8.5 million during the
quarter, $6.5 million of domestic debt during the first quarter of 1999. We
borrowed $.6 million in Deutsche marks from a separate multi-currency facility.
These funds were utilized by the German operations of our AMI Doduco subsidiary.
At April 2, 1999, we had approximately $124.6 million of unused lines of credit
from banks.
We paid dividends of approximately $1.0 million during the quarter
ended April 2, 1999. We expect to continue paying quarterly dividends for the
foreseeable future.
Foreign Currency Effects
During the first quarter of 1999, the Euro devalued approximately 8.0%
relative to the U.S. dollar. As a result, we incurred foreign currency losses at
our ECS European operations during the first quarter of 1999. In addition, we
experienced a negative translation adjustment to equity as our investment in the
MCS's European operations is worth less in U.S. dollars than prior to the
downward valuation of the Euro. This decrease in U.S. dollar value is reflected
as a reduction in equity.
We transact a significant amount of sales in currencies other than the
U.S. dollar. Therefore, changing exchange rates often impact our financial
results. This is particularly true of movements in the exchange rate between the
U.S. dollar and the Euro because AMI Doduco's European sales are denominated
primarily in the Euro. In the future, it is possible that an increasing
percentage of our sales will be denominated in non-U.S. currencies. This would
increase our exposure to currency fluctuations.
In order to reduce our exposure resulting from currency fluctuations,
we may purchase currency exchange forward contracts and/or currency options.
These contracts guarantee a predetermined range of exchange rates at the time
the contract is purchased. This allows us to shift the majority of the risk of
currency fluctuations from the date of the contract to a third party for a fee.
At April 2, 1999, we had two forward exchange contracts outstanding. Both were
short-term in duration and immaterial to our financial position. In determining
the use of forward exchange contracts and currency options, we consider the
amount of sales and purchases made in local currencies, the type of currency,
and the costs associated with the contracts.
Page 14 of 25
<PAGE>
New Accounting Pronouncements
In June of 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. This
standard is effective for quarters of fiscal years beginning after June 15,
1999. Adoption of this standard is not expected to have a material effect on our
operating results or liquidity. The impact of this standard on our balance sheet
will depend on the amount of hedging activity outstanding on the date of
adoption.
Results of Operations
Our results of operations for the quarters ending April 2, 1999 and
March 31, 1998 are as follows. Amounts are in thousands:
Quarter Ended
April 2, March 31,
1999 1998
---- ----
Net sales:
Electronic Components $ 67,754 $ 50,070
Metallurgical Components 57,476 60,678
-------- --------
Total $125,230 $110,748
======== ========
Earnings before income taxes:
Electronic Components $ 8,889 $ 10,190
Metallurgical Components 3,920 5,116
-------- --------
Operating profit 12,809 15,306
Other income (expense), net (1,041) (41)
-------- --------
Earnings before income taxes $ 11,768 $ 15,265
======== ========
Revenues
Net sales for the first quarter of 1999 increased by $14.5 million or
13.1% when compared to the prior year first quarter. The increase is due to a
35.3% increase in ECS sales partially offset by somewhat lower MCS sales.
The ECS sales in the first quarter of 1999 were $67.8 million, $17.7
million higher than the comparable period of 1998. The increase is primarily
attributable to the sales contributed by the operations of FEE acquired on July
3, 1998 and the GTI/Valor business acquired on November 16, 1998. We believe
that our recent acquisitions will continue to provide revenue growth as we
complete the integration of the sales and marketing functions of both FEE and
GTI/Valor.
The MCS first quarter sales decreased $3.2 million, or 5.3%, from sales
levels attained by the MCS in the first three months of 1998. The MCS sales were
adversely affected by weakness in the European economies in general. Except for
sales in the
Page 15 of 25
<PAGE>
automotive industry, our sales were generally lower across all markets we serve
in Europe. This weakness in 1999 is especially apparent in comparison to the
strong first quarter 1998 operating results from our European operations.
Additionally, our sales of industrial contacts were somewhat lower than the same
period in the prior year. Positively impacting first quarter 1999 sales were the
sales contributed by the operations of Metales, acquired on July 3, 1998, and
generally strong sales in most sectors of our North American markets.
Cost of Sales
During the first quarter of 1999, our gross margin was 30.5%, a
decrease from 32.6% in the first quarter of 1998. Both the ECS and MCS gross
margins decreased from the prior year first quarter. There were a variety of
factors contributing to the decline in margin. For the ECS, the primary factors
were:
* the addition of the FEE and GTI/Valor businesses which operate
generally at somewhat lower margins than the traditional Pulse
businesses;
* the continuing integration efforts of FEE and Valor which resulted
in the relocation and consolidation of certain production
operations;
* additional costs incurred to meet high customer demand toward the
end of the first quarter of 1999; and
* normal pricing pressures from the ECS customers.
Upon completion of the integration efforts of FEE and Valor, we expect the ECS's
margins to improve.
The MCS margins were negatively affected by weakness in the European
markets as our costs were allocated over less volume.
Operating Expenses
Total selling, general and administrative expenses for the first
quarter of 1999 were $25.3 million, or 20.2% of sales, compared to $20.8
million, or 18.8% of sales, in the comparable 1998 period. The increase in
selling, general and administrative expenses, both in dollars and as a
percentage of sales, includes the effect of ECS's continuing integration efforts
related to its most recent acquisitions. Integration related expenses reduced
the ECS's operating profit, in dollars, by approximately 10%. In addition, the
MCS continues to incur expenses relating to the implementation of an enterprise
resource planning system. These costs in the first quarter of 1999 were higher
than the comparable period of 1998, while 1999 MCS revenues were lower. We
anticipate these implementation costs to be higher yet in the second quarter of
1999 and to decline thereafter as the installation of the system is expected to
be substantially completed in the second quarter of 1999.
Page 16 of 24
<PAGE>
Research, development and engineering expenses are included in selling,
general and administrative expenses. We refer to research, development and
engineering expenses as RD&E. For the quarter ended April 2, 1999, RD&E expenses
were $3.5 million, or 5.2% of ECS sales, for the ECS and $1.6 million, or 2.7%
of MCS sales, for the MCS. For the comparable period in 1998, the amounts were
$2.5 million, or 5.0% of ECS sales, for the ECS and $1.4 million, or 2.3% of MCS
sales, for the MCS. The ECS spending for RD&E continues to increase as this
Segment invests in new technologies and related improvements. Neither Segment
plans any significant increase or reduction in RD&E efforts in the near-term.
Interest
Net interest expense was approximately $.7 million during the first
quarter of 1999, compared with less than $.1 million of net interest expense
during the first quarter of 1998. Interest expense increased when compared to
the first quarter of 1998 primarily as a result of higher levels of debt
outstanding. The higher debt levels resulted primarily from our acquisition of
GTI/Valor on November 16, 1998. In addition, interest expense on precious metal
held under leasing and consignment arrangements was higher in the first quarter
of 1999 than in the comparable 1998 period.
The majority of our credit facilities have variable interest rates.
Accordingly, interest expense may increase if the rates associated with, or the
amounts borrowed under, our credit facilities move higher during subsequent
quarters. In addition, we may pursue additional or alternative credit to finance
further growth opportunities in one or both of our segments. We may use interest
rate swaps or other financial derivatives in order to manage the risk associated
with changes in market interest rates; however, we have not used any such
instruments thus far.
Income taxes
Our effective income tax rate during the first quarter of 1999 was
25.8%. This compares to 38.6% in the same period of 1998 and 33.5% in the prior
quarter. The substantial decrease in our effective tax rate resulted from
actions initiated in the first quarter of 1999 related to our comprehensive
global review of our business operations. This comprehensive review was aimed at
ensuring that our overall tax rates are optimal and appropriate. Also
contributing to the lower overall tax rate was a decline in the proportion of
taxable income attributable to high-tax jurisdictions such as Germany.
Other Issues
Precious Metal
The MCS uses silver, as well as other precious metals, in the
manufacturing of electrical contacts, rivets and other products. Historically,
we have leased or held these materials through consignment arrangements with our
suppliers. Leasing and consignment costs have been substantially below the costs
to borrow funds to purchase the metals. In addition, the risk of a decrease in
the market price of owned precious metal can be substantial. As is sometimes the
case, during the first quarter of 1998, and to a lesser extent in early 1999,
the price of silver increased significantly. The associated leasing
Page 17 of 25
<PAGE>
costs also increased. The terms of sale within the MCS allow us to charge
customers for the current market value of silver. However, leasing costs cannot
always be recovered. Thus far we have been successful in managing the costs
associated with our precious metals. While limited amounts are purchased for use
in production, the vast majority of our precious metal inventory continues to be
leased or held on consignment. If our leasing/consignment fees increase
significantly in a short period of time, and we are unable to recover these
increased costs through higher sale prices, a negative impact on our results of
operations and liquidity may result. We believe this risk is shared by all of
our competitors.
Year 2000 Computer Issues
General
The popularly called "Year 2000" issues associated with the programming
code in existing computer systems revolve around whether computer systems will
properly recognize date-sensitive information when the year changes to 2000.
Information technology ("IT") and non-IT systems that do not properly recognize
such information could generate erroneous data or cause a system to fail. The
Year 2000 problem is pervasive and complex, as virtually every computer
operation will be affected in some way by the rollover of the two digit value to
00.
Our IT systems include central business computing and ancillary
business computing systems, payroll systems and manufacturing systems. Our
non-IT systems, those with embedded technology such as microcontrollers, include
time reporting systems, alarm and security systems, telecommunication systems,
plant machinery controls and electronic data interfaces. We have analyzed the
impact of the Year 2000 issues on our systems and have, or are in the process
of, addressing the issues raised by our analysis.
Our products do not include date-sensitive software or embedded
technology. As a result, we do not expect to experience product warranty or
return issues relating to the Year 2000 problem.
State of Readiness
As a result of our decentralized segment structure and the diversified
systems employed by each segment and the corporate location, the Year 2000 issue
is being managed by each group separately. Oversight and status reviews are
performed by corporate personnel and, ultimately, the audit committee and board
of directors. Corporate, the ECS and the MCS are in varying stages of addressing
Year 2000 issues. We have defined the stages of progress for Year 2000 readiness
as follows: awareness, assessment, renovation, validation and implementation.
Corporate and the ECS are generally in the implementation stage while the MCS is
generally in the renovation and validation stages. Both the ECS and MCS are
currently assessing and addressing Year 2000 issues related to their 1998
acquisitions.
Page 18 of 25
<PAGE>
Corporate
The IT systems at our corporate location are primarily purchased
programs. Periodically, these programs are updated with new releases. As a
result of these updates and discussions with vendors, we believe that internal
IT systems used at the corporate location are Year 2000 ready in all material
respects.
We maintain electronic interfaces with external vendors, including
banks, insurance companies, employee benefit providers and many other parties.
In addition, we are dependent on parties such as our transfer agent and the NYSE
to provide for uninterrupted trading of our securities. Based on discussions
with their personnel, we believe these highly regulated institutions are or will
be Year 2000 ready, although we have received no such guarantees. We have
requested Year 2000 readiness statements from these vendors. In the event that
these parties experience Year 2000 problems, the consequences to us are unknown.
We believe that corporate non-IT systems are Year 2000 ready, although
the use of non-IT systems at the corporate level is not critical to our
operations.
ECS
In mid-1997, the ECS formed a working group to address Year 2000 issues
facing this segment. All of the ECS's corporate applications were reviewed to
determine whether to repair, re-engineer, replace, or retire each system. All
recommended reprogramming steps to achieve Year 2000 readiness have been
completed. In addition, the ECS completed compliance implementations and related
testing for infrastructure-related issues with the operating systems, computer
networks, and telecommunications equipment and services, as well as the ECS's
facilities and security systems. To the extent problems develop, the ECS expects
that its IT department, with the assistance of external consultants, will be
able to address those problems on a timely basis.
Regarding the FEE acquisition, the ECS has completed an assessment of
Year 2000 issues related to FEE's IT and non-IT systems. Year 2000 issues were
identified and are currently being addressed by internal resources.
Implementation of necessary changes and testing of those changes are expected to
be completed by the end of the third quarter of 1999 without material
expenditures.
Prior to our acquisition of GTI, GTI completed the installation of an
enterprise resource planning system which addressed GTI's Year 2000 issues
related to their information systems. Any potential Year 2000 issues related to
GTI's facilities or non-IT systems will be addressed by our plans to integrate
GTI's operations into our facilities, which we believe are Year 2000 ready.
The ECS is still in the process of contacting vendors and suppliers,
including hardware, software, telecommunications, networking, security, data and
service providers, regarding the Year 2000 readiness status of their companies
and products. To the extent that a supplier is not able to become Year 2000
ready, alternative supply sources will be identified and contacted, and their
Year 2000 readiness status verified within the next two quarters. The ECS
expects that its major vendors or suppliers will be Year 2000 ready.
Page 19 of 25
<PAGE>
Aggregate external costs incurred to address Year 2000 issues within
the ECS have approximated $380,000. About $280,000 of this amount was paid to
consultants and expensed when incurred. The remainder of the costs related to
accelerated purchases of licenses and software, and was capitalized in
accordance with existing company policy. Future costs related to the ECS Year
2000 issues are expected to be immaterial to the ECS.
MCS
Motivated in part by the Year 2000 issue and issues related to the Euro
currency conversion, but more so by the need for managers to have access to
real-time business data, the MCS is in the process of completing the
installation of a worldwide enterprise resource planning system. The system went
"live" as planned and on budget in early April in Germany and most of North
America. The vendor has warranted that the software is Year 2000 ready.
The MCS is utilizing both internal and external resources to identify,
correct or reprogram and test remaining IT and non-IT systems for Year 2000
compliance, including those systems in Mexico acquired in July of 1998. It is
anticipated that all reprogramming efforts will be completed in a time period
sufficient to allow for appropriate testing.
A Year 2000 readiness review of manufacturing systems is also under
way. The MCS's manufacturing systems include furnace controls, computer
integrated manufacturing systems, shop floor data collection and test equipment.
Some of these systems include embedded systems. It is anticipated that any
material Year 2000 problems will be identified and corrected by December of 1999
without material expense.
Excluding the costs of implementing the ERP system, the total costs --
incurred and to be incurred -- associated with addressing the Year 2000 issues
within the MCS are estimated to be $150,000. Those costs are being expensed as
incurred. The cost of implementing the ERP system is significant to us; however,
such costs have been budgeted and approved in the ordinary course of business
and are being expensed or capitalized in accordance with existing policy. While
we expect that problems will develop from time to time during the course of the
ERP change over, we do not believe that these problems will have a material
adverse effect on our operations or that they necessarily will be Year 2000
related.
The MCS has formalized questionnaires and sent those to vendors
requesting information regarding Year 2000 readiness. The MCS has received
completed surveys from a number of its suppliers. The identification of
alternative supply sources is our intended corrective action with regard to
non-compliant suppliers.
Contingency Plans
As the corporate location and the ECS believe their aggressive action
with respect to Year 2000 problems will mitigate material problems, overall
contingency plans have not been developed.
Page 20 of 25
<PAGE>
In the event that there is a failure of the ERP system, the MCS's
contingency plans include reverting to existing financial systems that are Year
2000 ready. Other financial and non-financial applications would be run manually
and problems would be addressed as identified.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. For example, if a utility company were unable to deliver power, or
if a major vendor were unable to deliver product, the operations of the affected
segment could be disrupted or even temporarily shut down. However, in each
segment, our manufacturing facilities and locations are more geographically
diverse than those of most of our competitors. This diversity provides a natural
hedge against those Year 2000 problems which may affect a given supplier or
utility. In the unlikely event that such failures occur, they could materially
and adversely affect our results of operations, liquidity and financial
condition. Due to the general uncertainty of the Year 2000 problem, including
the uncertainty of the Year 2000 readiness of third-party suppliers and
customers, we are unable to determine with complete certainty at this time
whether the consequences of Year 2000 failures will have a material impact on
our results of operations, liquidity or financial condition. Although there can
be no assurance that we have identified and corrected, or will identify and
correct, every Year 2000 problem existing in IT and non-IT systems, we believe
that we have programs in place to identify and correct any such material
problems and that our actions have significantly decreased the risks associated
with the Year 2000 problem.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the Euro. We refer to the 11 countries as the participating countries and
the participating countries' sovereign currencies as the legacy currencies. The
Euro now trades on currency exchanges and is available for non-cash
transactions.
The legacy currencies are scheduled to remain legal tender in the
participating countries as denominations of the Euro between January 1, 1999 and
July 1, 2002. During this transition period, public and private parties may pay
for goods and services using either the Euro or a legacy currency. Beginning
January 1, 2002, the participating countries will issue new Euro-denominated
bills and coins for use in cash transactions. By July 1, 2002, the participating
countries will withdraw all bills and coins denominated in the legacy
currencies, so that the legacy currencies no longer will be legal tender for any
transactions. The conversion to the Euro will then be complete.
We have developed plans to ensure, to the extent possible, the Euro
will not negatively impact our operations. On a company-wide basis, those
efforts have been coordinated by the corporate Treasurer and have included
internal personnel as well as external consultants. The ECS is currently
evaluating the impact of the Euro on the operations located in Europe. The MCS
is in the renovation and implementation stages of addressing Euro conversion
related system issues for its European operations.
Page 21 of 25
<PAGE>
The failure to correct a material Euro conversion issue could result in
an interruption in, or failure of, certain normal business activities. Such
failures could materially and adversely affect our results of operations,
liquidity and financial condition. Due to the general uncertainty inherent in
the conversion to the Euro, we are unable to determine at this time whether the
consequences of Euro conversion failures will have a material impact on the
company's results of operations, liquidity or financial condition. During 1999,
we have not encountered any material Euro conversion problems.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in market risk exposures that affect the
quantitative and qualitative disclosures presented in our Form 10-K for the year
ended December 31, 1998.
Page 22 of 25
<PAGE>
Part II. Other Information
Item 1 Legal Proceedings None
Item 2 Changes in Securities and Use of Proceeds None
Item 3 Defaults Upon Senior Securities None
Item 4 Submission of Matters to a Vote of Security Holders None
Item 5 Other Information None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibit Index is on page 24
(b) Reports On Form 8-K
We filed a report on form 8-K/A on January 28,
1999. This report pertains to the acquisition of GTI on
November 16, 1998 and includes pro forma financial
information as well as historical financial statements of
GTI.
We also filed a report on Form 8-K on January 29,
1999. This report pertains to a change in our fiscal year
from December 31 of each year to the last Friday of each
December.
Page 23 of 25
<PAGE>
Exhibit Index
Document
3.(i) Articles of Incorporation Incorporated by reference to
Form 8-A/A dated April 10, 1998
(ii) By-laws Attached to this Form 10-Q
4. Instruments defining rights of Incorporated by reference from Form
security holders 10-K for the year ended
December 31, 1995 and from
Exhibit 4 of Form 8-K dated
August 30, 1996
27. Financial Data Schedule Electronic Filing Only
- --------------------------------------------------------------------------------
Page 24 of 25
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Technitrol, Inc.
----------------------------------------
(Registrant)
May 17, 1999 /s/Albert Thorp, III
- ----------------------------------- ----------------------------------------
(Date) Albert Thorp, III
Vice President - Finance and
Chief Financial Officer
(Principal Financial Officer)
May 17, 1999 /s/Drew A. Moyer
- ----------------------------------- ----------------------------------------
(Date) Drew A. Moyer
Corporate Controller and Secretary
(Principal Accounting Officer)
Page 25 of 25
<PAGE>
EXHIBIT 3.(ii)
As Amended at 1/27/99 Board Meeting
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
EXHIBIT 3.(ii) page 1
<PAGE>
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
EXHIBIT 3.(ii) page 2
<PAGE>
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
EXHIBIT 3.(ii) page 3
<PAGE>
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.
EXHIBIT 3.(ii) page 4
<PAGE>
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.
EXHIBIT 3.(ii) page 5
<PAGE>
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.
EXHIBIT 3.(ii) page 6
<PAGE>
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
EXHIBIT 3.(ii) page 7
<PAGE>
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
EXHIBIT 3.(ii) page 8
<PAGE>
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.
EXHIBIT 3.(ii) page 9
<PAGE>
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
EXHIBIT 3.(ii) page 10
<PAGE>
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.
EXHIBIT 3.(ii) page 11
<PAGE>
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
EXHIBIT 3.(ii) page 12
<PAGE>
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
EXHIBIT 3.(ii) page 13
<PAGE>
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
EXHIBIT 3.(ii) page 14
<PAGE>
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
EXHIBIT 3.(ii) page 15
<PAGE>
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 the day
immediately following the last Friday of December 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 (Sss.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.
EXHIBIT 3.(ii) page 16
<PAGE>
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<ARTICLE> 5
<LEGEND>
Note - EPS information has been prepared in accordance with Statement
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entered in place of primary and fully diluted, respectively.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> APR-2-1999
<CASH> 42284
<SECURITIES> 0
<RECEIVABLES> 71916
<ALLOWANCES> 0
<INVENTORY> 70899
<CURRENT-ASSETS> 200606
<PP&E> 150838
<DEPRECIATION> 62649
<TOTAL-ASSETS> 336850
<CURRENT-LIABILITIES> 96961
<BONDS> 51854
<COMMON> 2026
0
0
<OTHER-SE> 179956
<TOTAL-LIABILITY-AND-EQUITY> 336850
<SALES> 125230
<TOTAL-REVENUES> 125230
<CGS> 112421
<TOTAL-COSTS> 112421
<OTHER-EXPENSES> 342
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 699
<INCOME-PRETAX> 11768
<INCOME-TAX> 3032
<INCOME-CONTINUING> 8736
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<NET-INCOME> 8736
<EPS-PRIMARY> .55
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