FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1998
Commission File Number 1-6018
TOKHEIM CORPORATION
(Exact name of Registrant as specified in its charter)
INDIANA 35-0712500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10501 CORPORATE DRIVE, FORT WAYNE, IN 46845
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number including area code): (219) 470-4600
NOT APPLICABLE
(Former name, former address, and former fiscal year if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No
As of May 31, 1998,12,648,222 shares of voting common stock were
outstanding.
In addition, 763,928 shares of convertible preferred stock were held by the
Retirement Savings Plan for Employees of Tokheim Corporation and
Subsidiaries.
The exhibit index is located on page 17
TOKHEIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF
EARNINGS
(Amounts in thousands, except amounts per share)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------------------------------
May 31, 1998 May 31, 1997 May 31, 1998 May 31, 1997
Unaudited Unaudited Unaudited Unaudited
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
NET SALES $ 99,652 $ 95,857 $ 190,505 $ 187,881
Cost of sales, exclusive of items listed below 73,118 70,379 140,191 140,771
Selling, general, and administrative expenses 18,637 16,985 34,894 32,888
Depreciation and amortization 2,619 2,452 5,118 4,380
Merger and acquisition costs and other unusual items 345 478 6,333 478
--------- ------- -------- -------
OPERATING PROFIT 4,933 5,563 3,969 9,364
Interest expense, net 3,322 4,455 7,333 8,195
Foreign currency gains (815) (57) (780) (177)
Minority interest (10) 124 63 81
Other income, net (499) (132) (278) (200)
---------- ---------- ---------- --------
Earnings (loss) before income taxes and
extraordinary loss 2,935 1,173 (2,369) 1,465
Income taxes 508 (37) 809 130
---------- ---------- ---------- ----------
Earnings (loss) before extraordinary loss 2,427 1,210 (3,178) 1,335
Extraordinary loss from debt extinguishment (4,965) --- (4,965) ---
---------- ---------- ---------- ----------
NET EARNINGS (LOSS) (2,538) 1,210 (8,143) 1,335
Preferred stock dividends (370) (375) (744) (758)
---------- ---------- ---------- ----------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $ (2,908) $ 835 $ (8,887) $ 577
========== ============= ========== ==========
Earnings (loss) per common share:
Basic:
Before extraordinary loss $ 0.17 $ 0.10 $ (0.39) $ 0.07
Extraordinary loss on debt extinguishment (0.42) --- (0.49) ---
---------- -- ---------- ---------- ----------
Net earnings (loss) $ (0.25) $ 0.10 $ (0.88) $ 0.07
========== == ========== ========== ==========
Weighted average shares outstanding 11,884 7,974 10,087 7,961
Diluted:
Before extraordinary loss $ 0.16 $ 0.09 $ (0.39) $ 0.07
Extraordinary loss on debt extinguishment (0.39) --- (0.49) ---
---------- -- ---------- ---------- ----------
Net earnings (loss) $ (0.23) $ 0.09 $ (0.88) $ 0.07
========== == ========== ========== ==========
Weighted average shares outstanding 12,881 8,824 10,087 8,809
</TABLE>
TOKHEIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31, 1998 NOVEMBER 30,
Unaudited 1997
ASSETS ------------- -----------------
CURRENT ASSETS:
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 12,310 $ 6,438
RECEIVABLES, NET 77,844 83,011
INVENTORIES:
RAW MATERIALS AND SUPPLIES 30,939 29,427
WORK IN PROCESS 28,345 27,514
FINISHED GOODS 7,088 7,406
---------- ----------
66,372 64,347
PREPAID EXPENSES 6,554 6,705
---------- ----------
TOTAL CURRENT ASSETS 163,080 160,501
PROPERTY, PLANT, AND EQUIPMENT, NET 43,926 42,535
OTHER TANGIBLE ASSETS 3,454 3,615
GOODWILL, NET 71,046 67,695
OTHER NON-CURRENT ASSETS AND DEFERRED CHARGES, NET 15,297 16,273
---------- ----------
TOTAL ASSETS $ 296,803 $ 290,619
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT MATURITIES OF LONG-TERM DEBT $ 2,253 $ 2,391
NOTES PAYABLE, BANKS 257 98
CASH OVERDRAFT 11,836 10,575
ACCOUNTS PAYABLE 45,337 54,597
ACCRUED EXPENSES 46,400 51,190
---------- ----------
TOTAL CURRENT LIABILITIES 106,083 118,851
SENIOR SUBORDINATED NOTES 55,000 90,000
LONG-TERM DEBT 27,129 28,487
GUARANTEED EMPLOYEES' STOCK OWNERSHIP PLAN 8,232 9,429
OBLIGATION
POSTRETIREMENT BENEFIT LIABILITY 14,581 14,378
MINIMUM PENSION LIABILITY 2,173 2,173
OTHER LONG-TERM LIABILITIES 4,042 5,169
DEFERRED INCOME TAXES 364 342
MINORITY INTEREST 977 1,319
218,581 270,148
---------- ----------
REDEEMABLE CONVERTIBLE PREFERRED STOCK 24,000 24,000
GUARANTEED EMPLOYEES' STOCK OWNERSHIP PLAN OBLIGATION (8,232) (9,429)
TREASURY STOCK, AT COST (4,902) (4,718)
---------- ----------
10,866 9,853
---------- ----------
COMMON STOCK 88,883 21,158
MINIMUM PENSION LIABILITY (2,173) (2,173)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (20,152) (18,048)
RETAINED EARNINGS 946 9,821
---------- ----------
67,504 10,758
LESS TREASURY STOCK, AT COST (148) (140)
---------- ----------
67,356 10,618
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 296,803 $ 290,619
========== ==========
</TABLE>
TOKHEIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
MAY 31, 1998 MAY 31, 1997
UNAUDITED UNAUDITED
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET EARNINGS (LOSS) $ (8,143) $ 1,335
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO CASH PROVIDED FROM
(USED IN) OPERATIONS:
WRITE-OFF OF IN PROCESS RESEARCH AND DEVELOPMENT 5,879 --
EXTRAORDINARY LOSS FROM DEBT EXTINGUISHMENT 4,965 --
DEPRECIATION AND AMORTIZATION 5,118 4,380
AMORTIZATION OF DEFERRED DEBT ISSUANCE COST 721 924
MINORITY INTEREST (342) 82
GAINS ON SALE OF PROPERTY, PLANT, AND EQUIPMENT (2) (77)
DEFERRED INCOME TAXES 31 22
CHANGES IN ASSETS AND LIABILITIES:
RECEIVABLES, NET 5,142 14,585
INVENTORIES (2,783) (1,755)
PREPAID EXPENSES 98 (1,475)
ACCOUNTS PAYABLE (8,677) (877)
ACCRUED EXPENSES (5,225) (4,073)
U.S. AND FOREIGN INCOME TAXES (202) 521
OTHER (833) (1,793)
---------- ----------
NET CASH PROVIDED FROM (USED IN) OPERATIONS (4,253) 11,799
---------- ----------
CASH FLOWS FROM INVESTING AND OTHER ACTIVITIES:
ACQUISITION, NET OF CASH ACQUIRED (12,137) ---
PLANT AND EQUIPMENT ADDITIONS (5,058) (3,375)
PROCEEDS FROM SALE OF PROPERTY, PLANT, AND EQUIPMENT 177 379
---------- ----------
NET CASH USED IN INVESTING AND OTHER ACTIVITIES (17,018) (2,996)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
REDEMPTION OF SENIOR SUBORDINATED NOTES (35,000) ---
PREMIUMS PAID ON DEBT EXTINGUISHMENT (3,450) ---
DECREASE IN TERM DEBT (386) (4,548)
DECREASE IN NOTES PAYABLE, BANKS (830) (6,327)
INCREASE IN CASH OVERDRAFT 1,461 2,332
PROCEEDS FROM ISSUANCE OF COMMON STOCK 72,582 286
EQUITY ISSUANCE COSTS (4,858) ---
TREASURY STOCK, NET (191) (300)
PREFERRED STOCK DIVIDENDS (744) (758)
---------- ----------
NET CASH PROVIDED FROM (USED IN ) FINANCING ACTIVITIES 28,584 (9,315)
---------- ----------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH (1,441) (266)
CASH AND CASH EQUIVALENTS:
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,872 (778)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,438 9,814
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,310 $ 9,036
========== ==========
</TABLE>
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The interim financial statements are unaudited and reflect all adjustments
(consisting solely of normal recurring adjustments, other than the merger
and acquisitions costs and other unusual items and extraordinary loss from
debt extinguishment) that, in the opinion of management, are necessary for
a fair statement of the financial position, results of operations and cash
flows of the financial position, of operations and cash flows of the
interim periods presented. This report includes information in a condensed
form and should be read in conjunction with the audited consolidated
financial statements included in the Company's report on Form 10-K for the
year ended November 30, 1997, filed by Tokheim Corporation (the "Company")
with the Securities and Exchange Commission on February 13, 1998. The
results of operations for the three and six month periods ended May 31,
1998 are not necessarily indicative of the results to be expected for the
full year or any other interim period.
Certain prior year amounts in these financial statements have been
reclassified to conform with current period presentation.
ACQUISITION OF RPS BUSINESS OF SCHLUMBERGER LIMITED
On June 19, 1998, Tokheim announced the signing of an agreement (the
"Purchase Agreement") regarding the acquisition (the "Acquisition") of the
fuel dispenser, systems and service business of Schlumberger Limited (the
"RPS Business"). The Purchase Agreement contains other provisions customary
for transactions of this type, including representations and warranties
with respect to the conditions and operations of the RPS Business,
covenants with respect to the conduct of the RPS Business' operations prior
to the consummation of the Acquisition and various closing conditions,
including the receipt or waiver of all other necessary consents and
approvals and the continued accuracy of representations and warranties
contained in the Purchase Agreement.
In connection with the Acquisition of the RPS Business, the Company is in
the process of finalizing a comprehensive refinancing of the its current
debt structure. Included in this refinancing plan, the Company has
commenced a tender offer to repurchase the remaining $55,000 of its
outstanding 11 1/2% Senior Subordinated Notes due 2006 (the "Notes") at a
tender price of 119.512%, expressed as a percentage of the original face
value of the Notes. The Company believes that this refinancing will provide
more than adequate funds to consummate the Acquisition and support the
Company's working capital needs for the short-term and on into the
foreseeable long- term future. Terms of this refinancing are not yet final.
ACQUISITION OF MANAGEMENT SOLUTIONS, INC.
In December 1997, the Company acquired Management Solutions, Inc. ("MSI").
MSI develops and distributes retail automation systems (including Point of
Sale ("POS") software), primarily for the convenience store, petroleum
dispensing and fast food service industries. The Company paid MSI's
stockholders an initial amount of $12,000. The Company is also obligated to
make contingent payments of up to $13,200 over the next three years based
upon MSI's performance. The $13,200 consists of $8,000 of additional
purchase price, $2,600 related to a non-compete agreement, and $2,600 of
additional employee compensation. The Company borrowed funds for the
initial purchase price under the Company's bank credit facility (the "Bank
Credit Facility"). As part of the transaction, the Company entered into an
employment relationship with Arthur S. Elston, the President of MSI,
pursuant to which he will oversee the Company's retail automation systems
business.
The transaction was accounted for as a purchase. Intangible assets of
$4,800 were recorded which are being amortized over four years. In process
research and development ("R & D") of $5,900 was written off in connection
with the acquisition and is included in merger and acquisition ("M & A")
costs and other unusual items in the consolidated statement of earnings.
The portion of the contingent payments that do not relate to employee
compensation will be allocated to various intangible assets and goodwill
amortized over periods ranging from four to twelve years as the payments
are made.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards SFAS No.
128, Earnings Per Share, during the first quarter of fiscal 1998. Under
SFAS No. 128, the Company presents two earnings per share ("EPS") amounts,
Basic and Diluted. Basic EPS is calculated based on earnings available to
common shareholders and the weighted average number of shares outstanding
during the reported period. Diluted EPS includes additional dilution from
potential common stock, such as stock issuable pursuant to the conversion
of preferred stock or the exercise of stock options outstanding. The
incremental shares from conversions of preferred stock and the exercise of
stock options were not included in computing diluted EPS for the three and
six month periods ended May 31, 1998, since the effect of such is
antidilutive during periods when a net loss is reported. For the three
month and six month periods ended May 31, 1998 there were 767,817 shares of
convertible preferred stock outstanding and 228,528 and 245,596 of vested
and non-vested stock options, respectively, that could be exercised, which
could have a dilutive effect on EPS in the future. During the three month
and six month periods ended May 31, 1998, 4,250 and 74,812, respectively,
of stock options were exercised. EPS for the three and six month periods
ended May 31, 1997, has been restated to apply the provisions of SFAS No.
128. Earnings per common share calculated for the three and six month
periods ended May 31, 1997, on a primary and fully diluted basis under the
provisions of Accounting Principles Board Opinion No. 15 differs by less
than one cent per share from that calculated on a basic and diluted basis
under SFAS No. 128 as there is no difference in the earnings amounts
applicable to common stock and the difference between the weighted average
shares outstanding used in the two calculations is not material.
The following table presents information necessary to calculate earnings
per share for the three and six month periods ended May 31, 1998 and 1997.
<TABLE>
<CAPTION>
Basic
Three Months Ended Six Months Ended
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding (in thousands):
Weighted average outstanding............ 11,884 7,997 10,087 7,938
====== ===== ====== =====
Net earnings (loss):
Before extraordinary item............... $ 2,427 $ 1,210 $ (3,178) $ 1,335
Extraordinary loss on debt
extinguishment, net of tax benefit.... (4,965) -- (4,965) --
------- ---- ------- ----
Net earnings (loss)..................... (2,538) 1,210 (8,143) 1,335
Preferred stock dividend................ (370) (375) (744) (758)
----- ----- ----- -----
Earnings (loss) applicable to common
stock................................. $ (2,908) $ 835 $ (8,887) $ 557
========== ========= ========= =========
Net earnings (loss) per common share:
Before extraordinary item............... $ 0.17 $ 0.10 $ (0.39) $ 0.07
Extraordinary loss on debt
extinguishment, net of tax benefit.... (0.42) -- (0.49) --
--------- --------- --------- ---------
Net earnings (loss)..................... $ (0.25) $ 0.10 $ (0.88) $ 0.07
========= ========= ========= =========
</TABLE>
For financial reporting purposes, the loss per share, assuming full
dilution, is considered to be the same as basic since the effect of the
common stock equivalents would be antidilutive.
<TABLE>
<CAPTION>
Diluted
Three Months Ended Six Months Ended
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding (in thousands):
Weighted average outstanding............ 11,884 7,997 10,087 7,938
Share equivalents....................... 229 57 -- 54
Weighted conversion of preferred stock... 768 791 -- 792
------ ----- ------ -----
Adjusted outstanding.................... 12,881 8,845 10,087 8,784
====== ===== ====== =====
Net earnings (loss):
Before extraordinary item............... $ 2,427 $ 1,210 $ (3,178) $ 1,335
Extraordinary loss on debt
extinguishment, net of tax benefit.... (4,965) -- (4,965) --
------- --------- ------- ----
Net earnings (loss)..................... (2,538) 1,210 (8,143) 1,335
Preferred stock dividend................ (370) (375) (744) (758)
------- --------- ------- --------
Earnings (loss) applicable to common
stock..................................$ (2,908) $ 835 $ (8,887) $ 557
========= ========= ========= =========
Net earnings (loss) per common share:
Before extraordinary item............... $ 0.16 $ 0.09 $ (0.39) $ 0.07
Extraordinary loss on debt extinguish-
ment, net of tax benefit............. (0.39) -- (0.49) --
---------- --------- --------- ---------
Net earnings (loss)..................... $ (0.23) $ 0.09 $ (0.88) $ 0.07
========= ========= ========= =========
</TABLE>
ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 129 "Disclosure of
Information about Capital Structure," was adopted during the first quarter
of the fiscal year ending November 30, 1998. This statement did not have a
material impact on the Company's financial position, results of operations
or cash flows as disclosure requirements did not change for the Company
with this new statement. SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related information," and SFAS No. 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits," are
effective for the year ending November 30, 1999. In the opinion of
management, these statements will not have a material impact on the
Company's financial position, results of operations, or cash flows. SFAS
No. 130 "Reporting Comprehensive Income," is effective for the year ending
November 30, 1999. Due to the significance of the foreign currency
translation adjustments recorded, comprehensive income is expected to be
significantly lower than reported net earnings. SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued in June,
1998 and is effective for the year ending November 30, 2000. SFAS No. 133
establishes a new model for accounting for derivatives in the balance sheet
as either assets or liabilities and measured at fair value. Certain
disclosures concerning the designation and assessment of hedging
relationships are also required. In the opinion of the Company, the
adoption of this statement will not have a material impact on the Company's
financial position, results of operations, or cash flows.
The American Institute of Certified Public Accountants ("AICPA") Statements
of Position ("SOP") No. 96-1 "Environmental Remediation Liabilities," and
SOP No. 97-2 "Software Revenue Recognition," were adopted during the first
quarter of 1998. SOP No. 96-1 provides guidance for recognizing, measuring
and disclosing environmental remediation liabilities. SOP No. 97-2
supersedes SOP No. 91-1 and provides more specific guidance on revenue
recognition related to software products. The adoption of these statements
did not have a material impact on the Company's financial position, results
of operations or cash flows. SOP No. 98- 1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," is effective for
the year ending November 30, 2000. The Company adopted this statement
effective March 1, 1998 capitalizing approximately $400 associated with
internally developed software developed in connection with its
implementation of the new financial and accounting software package.
COMMON STOCK OFFERING
In March 1998, the Company completed an offering of 4,370,000 shares of its
common stock (the "Offering"). Net proceeds from the Offering totaled
approximately $67,724. The Company used $39,356 of the proceeds to redeem
$35,000 in aggregate principal amount of the Notes. These Notes were
redeemed at the call price of 109.857%, expressed as a percentage of the
original face value, resulting in premiums paid of $3,450 along with
accrued interest of $906. Following the redemption, $55,000 in aggregate
principal amount of the Notes remains outstanding. The Company recorded an
extraordinary loss on the extinguishment of the Notes of approximately
$4,965 during the second quarter of 1998. This loss includes $3,450 of
premiums paid to purchase the Notes and $1,515 representing the write-off
of a proportionate share of the original unamortized deferred issuance
costs. The remaining $28,368 was applied toward the Bank Credit Facility
and general corporate purposes. In December 1997, approximately $12,000 was
borrowed under the Bank Credit Facility to finance the acquisition of MSI.
This amount was repaid as part of the reduction of the Bank Credit Facility
balance. In the period prior to when the Company was able to effect the
redemption of the Notes, the proceeds were used to reduce the outstanding
balance of the Bank Credit Facility with the remaining amount placed in
short-term investments.
See financial statements and accompanying notes in the Company's 1997
Annual Report to Shareholders.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Tokheim is one of the world's largest manufacturers and servicers of
electronic and mechanical petroleum dispensing systems. These systems
include petroleum dispensers and pumps, POS, dispenser payment or
"pay-at-the-pump" terminals, replacement parts and upgrade kits. As a
result of its acquisition of the petroleum dispenser business of Sofitam
S.A. ("Sofitam") in September 1996, Tokheim has positioned itself as a
global competitor in the petroleum dispenser business, with the ability to
provide both products and services to customers in over 80 countries.
Tokheim is a leading supplier of petroleum dispensing systems in the United
States, France, Canada, Mexico, and Africa, and has strong market positions
in Italy, the United Kingdom, Germany, and Spain. The Company also has
operations established in Asia, Eastern Europe, and Latin America.
On June 19, 1998, Tokheim announced the signing of the Purchase Agreement
regarding the Acquisition of the RPS Business of Schlumberger Limited. See
"Notes to the Consolidated Condensed Financial Statements - Acquisition of
the RPS Business of Schlumberger Limited."
RESULTS OF OPERATIONS
Consolidated sales for the three and six month periods ended May 31, 1998
were $99,652 and $190,505, respectively. Consolidated sales, excluding
sales of the newly acquired subsidiary, MSI, were $97,796 and $187,034 as
compared to $95,857 and $187,881 in the year ago three and six month
periods, respectively.
On a comparable basis, consolidated sales for the 1998 three month period
increased 2.0% over the prior year period with the six month sales
declining by 0.5% from 1997 levels. Sales for North America, excluding
export sales, have increased 22.3% for the three month period from $34,935
in 1997 to $42,712 in 1998. The six month period sales have increased 17.3%
from $65,855 to $77,220. This increase is due to a stronger demand in the
Company's retail distribution and commercial dispenser sales for the first
half of the year. This demand was driven by new, more convenient products,
such as credit/debit card readers, environmental regulations, such as those
requiring vapor recovery systems, and unusually mild weather in the
northern regions for the first half of the year, which facilitated an
earlier than normal start of the construction period. International sales,
including domestic export sales, have decreased 9.5% for the three month
period from $60,882 in 1997 to $55,804 in 1998. The six month period sales
for 1998 have decreased 10.0% from 1997 amounts of $122,026 to $109,814. A
major contributing factor to this decrease in sales dollars for the three
and six month periods is attributable to the continued decline in foreign
currency exchange rates from prior year levels. International sales for the
three and six month periods ended May 31, 1998 would have been $2,741 and
$7,308 higher, respectively, if average exchange rates of European and
African currencies remained consistent with 1997 rates. In addition,
current year domestic export sales to the Asia Pacific region have
materially declined from prior year levels caused by the significant
economic downturn in that region's economy. Although the United States of
America ("U.S.") has taken steps to assist in the improvement of the Asia
Pacific region's economy, there can be no assurance as to when Asian market
conditions will improve or whether they may worsen or spread to other
regions.
Gross margins as a percent of sales (defined as net sales less cost of
sales divided by net sales) have remained constant at 26.6% for each of the
three month periods ended May 31, 1998 and 1997. The gross margin for the
six month period ended May 31, 1998 was 26.4% indicating a 1.3% improvement
from the year ago period. This improvement was primarily due to the
unusually high margins obtained during the first three months of 1998,
brought on by strong North America sales volumes. The first three months of
the Company's business cycle are generally lower sales volume months
creating less opportunity to recover manufacturing fixed cost.
Selling, general, and administrative expenses as a percent of sales for the
three and six month periods ended May 31, 1998 were 18.7% and 18.3%,
respectively. On a comparable basis, after excluding the effects of MSI,
these expenses were 18.3% and 17.2% for the three and six month periods of
1998 compared to 17.7% and 17.5% for the same year ago periods. The
increase in the three month period of 1998 was attributed to increased
costs associated with year 2000 corrective actions and royalty payments to
satisfy a previously settled lawsuit. The decrease in the six month period
of 1998 is attributable to the Company's continued implementation of the
Sofitam consolidation plan resulting in continued cost reductions in the
international operations.
Merger and acquisition cost and other unusual items for the three month
period ended May 31, 1998 relates to involuntary termination and other exit
costs incurred in connection with the sales office in Boca Raton, Florida.
The Company has ceased operations in Boca Raton to provide more responsive
attention to its customers in the Latin American region and Mexico through
its Tokheim de Mexico subsidiary. In addition to the restructuring
expenses, the merger and acquisition costs and other unusual items for the
six month period ended May 31, 1998 consists primarily of a $5,987
non-recurring write-off for in process research & development ("R&D") that
was purchased in connection with the acquisition of MSI. This amount
represents the estimated fair value of acquired incomplete R&D projects as
determined by an independent appraisal.
Net interest expense for the three and the six month periods ended May 31,
1998 have decreased by $1,133 and $862, respectively. These decreases are
due to significantly reduced debt levels from the prior year. The Company
reduced its outstanding borrowing under its Bank Credit Facility by $28,349
and repurchased $35,000 of its Notes from the net proceeds received from
the March 1998 equity offering.
Depreciation and amortization expense for the three and six month periods
of 1998 was $2,619 and $5,118 versus $2,452 and $4,380 reported in the
comparable year ago periods. The majority of the increase between periods
relates to increased amortization expense related to intangible assets
recorded in connection with the acquisition of MSI, as well as increased
depreciation expense on capital additions during the current year.
Foreign currency gains for the 1998 second quarter were $815 verses gains
of $57 in the second quarter of 1997. The current year to date foreign
currency gains were $780 compared to gains of $177 in the first six months
of 1997. During the second quarter of 1998 the Company realized a foreign
currency gain of $770 associated with the repayment of various French Franc
denominated Euro Currency contracts previously entered into under the
Company's Bank Credit Facility. Under the terms of the Bank Credit
Facility, the Company has the ability to borrow funds under Euro Currency
contracts denominated in a variety of foreign currencies. Due to the
decline in the value of the French Franc, the Company was able to repay
these contracts with less U.S. Dollars than it received when the original
contracts were entered into. Currently all remaining contracts held under
the Bank Credit Facility are denominated in U.S. Dollars.
Other income, net, for the second quarter of 1998 increased 0.4% as a
percent of sales from the prior year period. This increase was attributable
to fluctuations in numerous small income and expense items, none of which
are individually significant. Other income, net, for the six month periods
ended May 31, 1998 and 1997 remained unchanged at 0.1% of sales.
Income taxes have increased in the current year for both the three and six
month periods as compared to the year ago periods. This increase is due to
higher aggregate pretax earnings at foreign subsidiaries.
As a result of the above mentioned items, earnings before extraordinary
loss from debt extinguishment were $2,427 or $0.16 per common share on a
diluted basis for the three months ended May 31, 1998 compared to earnings
of $1,210 or $0.09 per common share on a diluted basis for the same period
in 1997. Loss before extraordinary loss from debt extinguishment was $3,178
or $0.39 per common share on a diluted basis for the six months ended May
31, 1998 compared to earnings of $1,335 or $0.07 per common share on a
diluted basis for the same period in 1997.
During the second quarter of 1998, the Company recorded an extraordinary
loss from debt extinguishment of $4,965, or $0.39 and $0.49 loss per
diluted common share for the three month and six month periods ended May
31, 1998, respectively. This loss was the result of the Company redeeming
$35,000 of its Notes under the call provision of the related indenture. The
amount includes $3,450 of premiums paid to call the Notes and $1,515
representing the write-off of a proportionate share of the original
unamortized deferred issuance cost.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations for the first six months ended May 31, 1998, was
$4,253 versus cash provided by operations of $11,799 in the comparable
period of 1997. This decline from the prior year was caused primarily by
decreased accounts payables, accrued expenses and increased inventories for
the six month period to a greater extent than in the prior year. Cash flow
from accounts receivable reductions were $14,585 in the year ago period
compared to $5,142 in the current year. During the first six months of 1997
the Company made major improvements in the newly acquired Sofitam entities
accounts receivable collection period and therefore generated an
exceptionally large inflow of cash from receivables collections at these
locations.
In March 1998, the Company completed an offering of 4,370,000 shares of its
common stock (the "Offering"). Net proceeds from the Offering totaled
approximately $67,724. The Company used $39,356 of the proceeds to redeem
$35,000 in aggregate principal amount of the Company's Notes. These Notes
were redeemed at the call price of 109.857%, expressed as a percentage of
the original face value, resulting in premiums paid of $3,450 along with
accrued interest of $906. Following the redemption, $55,000 in aggregate
principal amount of the Notes remains outstanding. The remaining $28,368
was applied toward the Bank Credit Facility and general corporate purposes.
In December 1997, approximately $12,000 was borrowed under the Bank Credit
Facility to finance the acquisition of MSI. This amount was repaid as part
of the reduction of the Bank Credit Facility balance. In the period prior
to when the Company was able to effect the redemption of the Notes, the
proceeds were used to reduce the outstanding balance of the Bank Credit
Facility with the remaining amount placed in short-term investments.
The Company's French subsidiaries participate, as needed, in a customary
practice of selling traits (selling accounts receivable without recourse)
to financial institutions. Under this agreement, the subsidiaries present
traits to financial institutions and receive 95% of the face value in the
form of short-term loans. These loans bear interest at a variable rate,
which was 3.8% at May 31, 1998. When the subsidiaries receive payment from
the customers, they remit 95% of the amount received back to the financial
institutions plus accrued interest. The amount outstanding at May 31, 1998
was approximately $7,062. The Company did not sell traits prior to 1997.
The Company incurred capital expenditures of $5,058 and $3,375 for the six
months ended May 31, 1998 and 1997, respectively. The increase relates
primarily to capital requirements for implementing the consolidation plan
for Sofitam, improvements at the Company's Fort Wayne, Indiana
manufacturing facility, and capitalizable costs associated with the
implementation of new finance and accounting software packages at the Fort
Wayne, Indiana and Lansdale, Pennsylvania locations. The Company adopted
SOP No. 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," effective March 1, 1998, capitalizing
approximately $400 associated with internally developed software developed
in connection with its implementation of the new financial and accounting
software package.
In connection with the continued implementation of the Sofitam
consolidation plan, the Company expects to incur a number of charges.
During the first six months of 1998, the Company charged $1,376 against the
acquisition accrual recorded for estimated cost necessary to realign the
Sofitam operations in Europe, including the closure of certain redundant
operations. This realignment also resulted in $137 of charges against
operating income for the 1998 six month period. With respect to the
consolidation, the Company anticipates charging $6,000 against the
remaining acquisition accrual during the next twelve to eighteen months.
The Company also expects to charge an additional $1,600 against operating
income for continued realignments in the second half of 1998. These
expenditures were originally scheduled for the 1999 fiscal year, however,
due to changing circumstances the Company has stepped up its timetable for
these realignments.
As part of the MSI acquisition, the Company is obligated to make contingent
payments of up to $13,200 over the next three years based on MSI's
performance. The $13,200 consists of $8,000 of additional purchase price,
$2,600 related to a non-compete agreement, and $2,600 of additional
employee compensation.
The Company has guaranteed loans to the Employees' Stock Ownership Plan
("ESOP") in the amounts of $8,232 and $9,429 at May 31, 1998 and 1997,
respectively. The Trustee who holds the ESOP Preferred Stock may elect to
convert each preferred share to one common share in the event of a
redemption by Tokheim, certain consolidations or mergers of Tokheim, or a
redemption by the Trustee that is necessary to provide for distributions
under the Company's Retirement Savings Plan. A participant may elect to
receive a distribution from the plan in cash or common stock. If redeemed
by the Trustee, the Company is responsible for purchasing the preferred
stock at the twenty-five dollar floor value. The Company may elect to pay
the redemption price in cash or an equivalent amount of common stock.
Preferred stock dividends paid were $744 and $758 for the first six months
of 1998 and 1997, respectively.
In December 1997, the Company began to implement its year 2000 ("Y2K")
plan, including the organization and staffing of a full-time Y2K program
office. The Company has organized the process into the following areas:
product certification (ensuring all products sold by the Company are Y2K
compliant); internal information systems (ensuring all internal hardware
and software is Y2K compliant through upgrades or replacement); suppliers,
distributors and external agents (ensuring all suppliers, distributors and
external agents used by the Company to purchase or sell goods and services
are Y2K compliant); and manufacturing and infrastructure (ensuring
manufacturing and infrastructure systems are Y2K compliant).
As of June 30, 1998, all of the Company's products have been tested; all
critical suppliers and distributors have been surveyed with such follow-up
as is needed; 40% of applicable software programs have been converted and
tested; and the manufacturing and infrastructure segment of the project is
to begin shortly. The Company expects to complete all of its diagnostics by
the end of the third quarter, 1999. To date, the Company has not uncovered
any major Y2K problems. The Company estimates that it will spend a total of
approximately $2,200 by December 31, 1999 (of which approximately $540 had
been sent by May 31, 1998), to become Y2K compliant.
The Company's long-term investments and long-term loans to foreign
subsidiaries, when translated at the May 31, 1998 and November 30, 1997
period end currency rates, resulted in a translation adjustment that is
reflected as a reduction to shareholders' equity of $20,263 and $18,048,
respectively. The adjustments represent the effect of changes in the
current rate of exchange from the beginning of the year to the end of the
six month periods used in translating the net assets of foreign
subsidiaries, including certain long-term intercompany loans of foreign
subsidiaries into U.S. Dollar amounts. The majority of the 1998 and 1997
adjustments are the result of translating long-term loans to foreign
affiliates, which were established to complete the acquisition of Sofitam.
It should be noted that the Company's loan covenants exclude foreign
currency translation gains or losses when calculating compliance with loan
covenants.
No cash dividends on common stock were declared or paid during the period.
Currently, the Bank Credit Facility and the indenture governing the Notes
restrict the payment of dividends.
Based upon the above discussions of liquidity and capital resources,
together with the Company's ability to generate future cash flows from
operations through various means and the availability of borrowing capacity
under the Company's Bank Credit Facility, $27,424 at July 3, 1998, the
Company believes that it has adequate liquidity available to it to meet
cash requirements for the short-term and the foreseeable long-term periods.
This assessment does not take into consideration the effect of the pending
consummation of the Acquisition as discussed below.
After the Acquisition
After consummation of the Acquisition, the Company's principal sources of
liquidity are expected to be cash flow from operations, including cash flow
anticipated to be generated from the Acquisition and available borrowings
under the agreements effecting the related refinancing. It is expected that
the Company's principal uses of cash will be to provide working capital,
finance capital expenditures, fund costs associated with the Acquisition,
implementation of a consolidation plan and meet debt service requirements.
Following the consummation of the Acquisition, the Company will be highly
leveraged. Based upon current operations, anticipated cost savings and
future growth, the Company believes that its cash flow from operations,
together with available borrowings under the agreements effecting the
refinancing and its other sources of liquidity (including leases), will be
adequate to meet its anticipated requirements for working capital, capital
expenditures, lease payments and scheduled principal and interest payments.
There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that estimated
cost savings or growth can be achieved.
In connection with the Acquisition, the Company is in the process of
finalizing a comprehensive refinancing of the Company's current debt
structure. Included in this refinancing plan, the Company has commenced a
tender an offer to repurchase the remaining $55,000 of its outstanding
Notes at a tender price of 119.512%, expressed as a percentage of the
original face value of the Notes. The Company belies that this refinancing
will provide more than adequate funds to consummate the Acquisition and
support the Company's working capital needs for the short-term and on into
the foreseeable long-term future. Terms of this refinancing are not yet
final.
EXHIBIT INDEX
NO. DESCRIPTION
(a)
3.1 Restated Articles of Incorporation of the Registrant, as amended,
as filed with the Indiana Secretary of State on February 5, 1997
(incorporated by reference to the Registrant's Annual Report on
form 10-K/A for the year ended November 30, 1997).
3.2 Bylaws of the Registrant, as rested on July 12, 1995 and amended
March 2, 1998.
10.12 Amendment No. 5 to Credit Agreement, dated as of March 20, 1998,
among the Registrant, certain subsidiaries of the Registrant,
certain banks and NBD Bank, N.A. (the "Credit Agreement"), dated as
of September 6, 1996 (incorporated by reference to the Registrant's
Quarterly Report on form 10-Q for the period ended February 28,
1998).
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
(b) Reports on Form 8-K.
The Company filed a report on form 8-K dated December 31, 1997,
describing the MSI acquisition. An amendment to that form 8-K dated
December 31, 1997, including financial statements of MSI and
unaudited pro forma financial statements. The Company filed a form
8-K dated March 17, 1998 containing an exhibit to the registration
statement for the Offering.
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.
TOKHEIM CORPORATION
Date: July 14, 1998 /S/ DOUGLAS K. PINNER
______________________________
Chairman, President and Chief
Executive Officer
Date: July 14, 1998 /S/ JOHN A. NEGOVETICH
_____________________________
Executive Vice-President, Finance
and Administration
and Chief Financial Officer
EXHIBIT INDEX
NO. DESCRIPTION
(a)
3.1 Restated Articles of Incorporation of the Registrant, as amended,
as filed with the Indiana Secretary of State on February 5, 1997
(incorporated by reference to the Registrant's Annual Report on
form 10-K/A for the year ended November 30, 1997).
3.2 Bylaws of the Registrant, as rested on July 12, 1995 and amended
March 2, 1998.
10.12 Amendment No. 5 to Credit Agreement, dated as of March 20, 1998,
among the Registrant, certain subsidiaries of the Registrant,
certain banks and NBD Bank, N.A. (the "Credit Agreement"), dated as
of September 6, 1996 (incorporated by reference to the Registrant's
Quarterly Report on form 10-Q for the period ended February 28,
1998).
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
(b) Reports on Form 8-K.
The Company filed a report on form 8-K dated December 31, 1997,
describing the MSI acquisition. An amendment to that form 8-K dated
December 31, 1997, including financial statements of MSI and
unaudited pro forma financial statements. The Company filed a form
8-K dated March 17, 1998 containing an exhibit to the registration
statement for the Offering.
TOKHEIM CORPORATION AND SUBSIDIARIES
Exhibit (11) - Earnings per share
For the three and six month periods ended May 31, 1998 and 1997.
(Restated to apply SFAS No. 128)
Basic earnings per share ("EPS") is calculated based on earnings (loss)
available to common shareholders and the weighted average number of common
stock shares outstanding during each period. Diluted EPS includes
additional dilution from potential common stock equivalents such as stock
issued pursuant to the conversion of preferred stock or the exercise of
stock options outstanding.
The following table presents information necessary to calculate earnings
per share for the three month and six month periods ended May 31, 1998 and
1997.
<TABLE>
<CAPTION>
Basic
Three Months Ended Six Months Ended
------------------ -----------------
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Shares outstanding (in thousands):
Weighted average outstanding............ 11,884 7,997 10,087 7,938
====== ===== ====== =====
Net earnings (loss):
Before extraordinary item............... $ 2,427 $ 1,210 $ (3,178) $ 1,335
Extraordinary loss on debt
extinguishment, net of tax benefit.... (4,965) -- (4,965) --
------- --------- -------- -------
Net earnings (loss)..................... (2,538) 1,210 (8,143) 1,335
Preferred stock dividend................ (370) (375) (744) (758)
------- --------- --------- ---------
Earnings (loss) applicable to common
stock................................. $ (2,908) $ 835 $ (8,887) $ 557
========= ========= ========= =========
Net earnings (loss) per common share:
Before extraordinary item............... $ 0.17 $ 0.10 $ (0.39) $ 0.07
Extraordinary loss on debt
extinguishment, net of tax benefit.... (0.42) -- (0.49) --
--------- --------- --------- ---------
Net earnings (loss).....................$ (0.25) $ 0.10 $ (0.88) $ 0.07
========== ========= ========= =========
</TABLE>
For financial reporting purposes, the loss per share, assuming full
dilution, is considered to be the same as basic since the effect of the
common stock equivalents would be antidilutive.
<TABLE>
<CAPTION>
Diluted
Three Months Ended Six Months Ended
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding (in thousands):
Weighted average outstanding............ 11,884 7,997 10,087 7,938
Share equivalents....................... 229 57 246 54
Weighted conversion of preferred stock... 768 791 768 792
------ ----- ------ -----
Adjusted outstanding..................... 12,881 8,845 11,101 8,784
====== ===== ====== =====
Net earnings (loss):
Before extraordinary item............... $ 2,427 $ 1,210 $ (3,178) $ 1,335
Extraordinary loss on debt
extinguishment, net of tax benefit... (4,965) -- (4,965) --
--------- -------- -------- --------
Net earnings (loss)..................... (2,538) 1,210 (8,143) 1,335
Preferred stock dividend................ (370) (375) (744) (758)
--------- --------- -------- --------
Earnings (loss) applicable to common
stock................................. $ (2,908) $ 835 $ (8,887) $ 557
========= ========= ========= =========
Net earnings (loss) per common share:
Before extraordinary item............... $ 0.16 $ 0.09 $ (0.35) $ 0.07
Extraordinary loss on debt
extinguishment, net of tax benefit.... (0.39) -- (0.45) --
--------- --------- --------- ---------
Net earnings (loss)..................... $ (0.23) $ 0.09 $ (0.80) $ 0.07
========= ========= ========= =========
</TABLE>
BYLAWS
OF
TOKHEIM CORPORATION
(Restated July 12, 1995; and Amended March 2, 1998)
ARTICLE I
Meetings of Shareholders
Section 1.1 Annual Meetings. Annual meetings of the
shareholders of the Corporation shall be held in March of each year, on
such date and at such hour and place within or without the State of Indiana
as shall be designated by the Board of Directors. The Board of Directors
may, by resolution, change the date, time or place of such annual meeting.
If the day fixed for any annual meeting of shareholders shall fall on a
legal holiday, then such annual meeting shall be held on the first
following day that is not a legal holiday.
Section 1.2 Special Meetings. Special meetings of the
shareholders of the Corporation may be called at any time by a majority of
the Board of Directors, the Chairman of the Board or the President and
shall be called by the Board of Directors if the Secretary receives
written, dated and signed demands for a special meeting, describing in
reasonable detail the purpose or purposes for which it is to be held, from
the holders of shares representing at least twenty-five percent (25%) of
all votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting. If the Secretary receives one (1) or more proper
written demands for a special meeting of shareholders, the Board of
Directors may set a record date for determining shareholders entitled to
make such demand. The Board of Directors or the Chairman of the Board, as
the case may be, calling a special meeting of shareholders shall set the
date, time and place of such meeting, which may be held within or without
the State of Indiana.
Section 1.3 Notices. A written notice, stating the date,
time and place of any meeting of the shareholders, and in the case of a
special meeting the purpose or purposes for which such meeting is called,
shall be delivered or mailed by the Secretary of the Corporation, to each
shareholder of record of the Corporation entitled to notice of or to vote
at such meeting no fewer than ten (10) nor more than sixty (60) days before
the date of the meeting. In the event of a special meeting of shareholders
required to be called as the result of a demand therefor made by
shareholders, such notice shall be given no later than the sixtieth (60th)
day after the Corporation's receipt of the demand requiring the meeting to
be called. Notice of shareholders' meetings, if mailed, shall be mailed,
postage prepaid, to each shareholder at his address shown in the
Corporation's current record of shareholders.
Notice of a meeting of shareholders shall be given to
shareholders not entitled to vote, but only if a purpose for the meeting is
to vote on any amendment to the Corporation's Restated Articles of
Incorporation, merger or share exchange to which the Corporation would be a
party, sale of the Corporation's assets, dissolution of the Corporation, or
consideration of voting rights to be accorded to shares acquired or to be
acquired in a "control share acquisition" ( as such term is defined in the
Indiana Business Corporation Law). Except as required by the foregoing
sentence or as otherwise required by the Indiana Business Corporation Law
or the Corporation's Restated Articles of Incorporation, notice of a
meeting of shareholders is required to be given only to shareholders
entitled to vote at the meeting.
A shareholder or his proxy may at any time waive notice of a
meeting if the waiver is in writing and is delivered to the Corporation for
inclusion in the minutes or filing with the Corporation's records. A
shareholder's attendance at a meeting, whether in person or by proxy, (a)
waives objection to lack of notice or defective notice of the meeting,
unless the shareholder or his proxy at the beginning of the meeting objects
to holding the meeting or transacting business at the meeting, and (b)
waives objection to consideration of a particular matter at the meeting
that is not within the purpose or purposes described in the meeting notice,
unless the shareholder or his proxy objects to considering the matter when
it is presented. Each shareholder who has in the manner above provided
waived notice or objection to notice of a shareholders' meeting shall be
conclusively presumed to have been given due notice of such meeting,
including the purpose or purposes thereof.
If an annual or special shareholders' meeting is adjourned
to a different date, time or place, notice need not be given of the new
date, time or place if the new date, time or place is announced at the
meeting before adjournment, unless a new record date is or must be
established for the adjourned meeting.
Section 1.4 Voting. Except as otherwise provided by the
Indiana Business Corporation Law or the Corporation's Restated Articles of
Incorporation, each share of the capital stock of any class of the
Corporation that is outstanding at the record date established for any
annual or special meeting of shareholders and is outstanding at the time of
and represented in person or by proxy at the annual or special meeting,
shall entitle the record holder thereof, or his proxy, to one (1) vote on
each matter voted on at the meeting.
Section 1.5 Quorum. Unless the Corporation's Restated
Articles of Incorporation or the Indiana Business Corporation Law provide
otherwise, at all meetings of shareholders a majority of the votes entitled
to be cast on a matter, represented in person or by proxy, constitutes a
quorum for action on the matter. Action may be taken at a shareholders'
meeting only on matters with respect to which a quorum exists; provided,
however, that any meeting of shareholders, including annual and special
meetings and any adjournments thereof, may be adjourned to a later date
although less than a quorum is present. Once a share is represented for any
purpose at a meeting, it is deemed present for quorum purposes for the
remainder of the meeting and for any adjournment of that meeting unless a
new record date is or must be set for that adjourned meeting.
Section 1.6 Vote Required to Take Action. If a quorum exists
as to a matter to be considered at a meeting of shareholders, action on
such matter (other than the election of Directors) is approved if the votes
properly cast favoring the action exceed the votes properly cast opposing
the action, except as the Corporation's Restated Articles of Incorporation
or the Indiana Business Corporation Law require a greater number of
affirmative votes. Directors shall be elected by a plurality of the votes
properly cast.
Section 1.7 Record Date. Only those persons shall be
entitled to notice of or to vote, in person or by proxy, at any
shareholders' meeting who shall appear as shareholders upon the books of
the Corporation as of the record date for such meeting set by the Board of
Directors, which date may not be earlier than the date seventy (70) days
immediately preceding the meeting. In the absence of such determination,
the record date shall be the fiftieth (50th) day immediately preceding the
date of such meeting. Unless otherwise provided by the Board of Directors,
shareholders shall be determined as of the close of business on the record
date.
Section 1.8 Proxies. A shareholder may vote his shares
either in person or by proxy. A shareholder may appoint a proxy to vote or
otherwise act for the shareholder (including authorizing the proxy to
receive, or to waive, notice of any shareholders' meetings within the
effective period of such proxy) by signing an appointment form either
personally or by the shareholder's attorney-in-fact. An appointment of a
proxy is effective when received by the Secretary or other officer or agent
authorized to tabulate votes and is effective for eleven (11) months unless
a shorter or longer period is expressly provided in the appointment form.
The proxy's authority may be limited to a particular meeting or may be
general and authorize the proxy to represent the shareholder at any meeting
of shareholders held within the time provided in the appointment form.
Subject to the Indiana Business Corporation Law and to any express
limitation on the proxy's authority appearing on the face of the
appointment form, the Corporation is entitled to accept the proxy's vote or
other action as that of the shareholder making the appointment.
Section 1.9 Removal of Directors. Any or all of the members
of the Board of Directors may be removed, with or without cause, only at a
meeting of the shareholders called expressly for that purpose, by a vote of
the holders of shares representing seventy-five percent (75%) of the votes
then entitled to be cast at an election of Directors.
Section 1.10 Participation by Conference Telephone. The
Chairman of the Board or the Board of Directors may permit any or all
shareholders to participate in an annual or special meeting of shareholders
by, or through the use of, any means of communication, such as conference
telephone, by which all shareholders participating may simultaneously hear
each other during the meeting. A shareholder participating in a meeting by
such means shall be deemed to be present in person at the meeting.
Section 1.11 Notice of Shareholder Business.
(a) At any meeting of the shareholders, only such
business may be conducted as shall have been properly brought before the
meeting, and as shall have been determined to be lawful and appropriate for
consideration by shareholders at the meeting. To be properly brought before
a meeting, business must be:
(i) specified in the notice of meeting
given in accordance with Section 1.3 of this Article I,
(ii) otherwise properly brought before
the meeting by or at the direction of the Board of Directors or the
Chief Executive Officer, or
(iii) otherwise properly brought before
the meeting by a shareholder.
(b) For business to be properly brought before a
meeting by a shareholder pursuant to clause (c) above, the shareholder must
have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal office of the Corporation, not less
than 50 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 60 days' notice of the date of the meeting
is given to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the tenth day following
the day on which such notice of the date of the meeting was given. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the meeting:
(i) a brief description of the business
desired to be brought before the meeting,
(ii) the name and address, as they
appear on the Corporation's stock records, of the shareholder
proposing such business,
(iii) the class and number of shares of
the Corporation which are beneficially owned by the shareholder,
and
(iv) any interest of the shareholder in
such business.
Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at a meeting except in accordance with the
procedures set forth in this Section 1.11. The person presiding at the
meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting in accordance
with the Bylaws, or that business was not lawful or appropriate for
consideration by shareholders at the meeting, and if he should so
determine, he shall so declare to the meeting and any such business shall
not be transacted.
Section 1.12 Notice of Shareholder Nominees. Nominations of
persons for election to the Board of Directors of the Corporation may be
made at any meeting of shareholders by or at the direction of the Board of
Directors or by any shareholder of the Corporation entitled to vote for the
election of directors at the meeting. Shareholder nominations shall be made
pursuant to timely notice given in writing to the Secretary of the
Corporation in accordance with Section 1.11 of this Article I. Such
shareholder's notice shall set forth, in addition to the information
required by Section 1.11, as to each person whom the shareholder proposes
to nominate for election or reelection as a Director:
(a) the name, age, business address and residence
address of such person,
(b) the principal occupation or employment of such
person,
(c) the class and number of shares of the Corporation
which are beneficially owned by such person,
(d) any other information relating to such person
that is required to be disclosed in solicitation of proxies for election of
Directors, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (including
without limitation such person's written consent to being named in the
proxy statement as a nominee and to serving as a Director if elected), and
(e) the qualifications of the nominee to serve as a
Director of the Corporation. No shareholder nomination shall be effective
unless made in accordance with the procedures set forth in this Section
1.12. The person presiding at the meeting shall, if the facts warrant,
determine and declare to the meeting that a shareholder nomination was not
made in accordance with the Bylaws, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be
disregarded.
ARTICLE II
Directors
Section 2.1 Number and Terms. The business and affairs of
the Corporation shall be managed under the direction of a Board of
Directors consisting of ten (10) Directors.
The Directors shall be divided into three (3) groups
consisting of three (3) Directors in each group, with one-third (1/3) the
total as near as may be, whose terms expire on successive years; and at
each annual meeting of shareholders, the Directors chosen to succeed those,
whose terms then expire, shall be identified as being of the same group as
the Directors they succeed and shall be elected for a term expiring at the
third succeeding annual meeting of shareholders.
Despite the expiration of a Director's term, the Director
shall continue to serve until his successor is elected and qualified, or
until the earlier of his death, resignation, disqualification or removal,
or until there is a decrease in the number of Directors. Any vacancy
occurring in the Board of Directors, from whatever cause arising, shall be
filled by selection of a successor by a majority vote of the remaining
members of the Board of Directors (although less than a quorum); provided,
however, that if such vacancy or vacancies leave the Board of Directors
with no members or if the remaining members of the Board are unable to
agree upon a successor or determine not to select a successor, such vacancy
may be filled by a vote of the shareholders at a special meeting called for
that purpose or at the next annual meeting of shareholders. The term of a
Director elected or selected to fill a vacancy shall expire at the end of
the term for which such Director's predecessor was elected. In the event
the Board of Directors shall increase the total number of its members
within the limits provided in the Articles of Incorporation, the Board of
Directors shall be authorized to assign such additional member or members
to such class of Directors as it deems appropriate and to fill such vacancy
for the term of that class to which such additional member or members are
assigned.
The Directors and each of them shall have no authority to
bind the Corporation except when acting as a Board.
Section 2.2 Quorum and Vote Required to Take Action. A
majority of the whole Board of Directors shall be necessary to constitute a
quorum for the transaction of any business, except the filling of
vacancies. If a quorum is present when a vote is taken, the affirmative
vote of a majority of the Directors present shall be the act of the Board
of Directors, unless the act of a greater number is required by the Indiana
Business Corporation Law, the Corporation's Restated Articles of
Incorporation or these Bylaws.
Section 2.3 Annual and Regular Meetings. The Board of
Directors shall meet annually, without notice, immediately following the
annual meeting of the shareholders, for the purpose of transacting such
business as properly may come before the meeting. Other regular meetings of
the Board of Directors, in addition to said annual meeting, shall be held
on such dates, at such times and at such places as shall be fixed by
resolution adopted by the Board of Directors and specified in a notice of
each such regular meeting, or otherwise communicated to the Directors. The
Board of Directors may at any time alter the date for the next regular
meeting of the Board of Directors.
Section 2.4 Special Meetings. Special meetings of the Board
of Directors may be called by the Chairman of the Board, the President or a
majority of the members of the Board of Directors upon not less than
twenty-four (24) hours' notice given to each Director of the date, time and
place of the meeting, which notice need not specify the purpose or purposes
of the special meeting. Such notice may be communicated in person (either
in writing or orally), by telephone, telegraph, teletype or other form of
wire or wireless communication, or by mail, and shall be effective at the
earlier of the time of its receipt or, if mailed, five (5) days after its
mailing. Notice of any meeting of the Board may be waived in writing at any
time if the waiver is signed by the Director entitled to the notice and is
filed with the minutes or corporate records. A Director's attendance at or
participation in a meeting waives any required notice to the Director of
the meeting, unless the Director at the beginning of the meeting (or
promptly upon the Director's arrival) objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or
assent to action taken at the meeting.
Section 2.5 Written Consents. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if the action is taken by all members of the Board. The
action must be evidenced by one (1) or more written consents describing the
action taken, signed by each Director, and included in the minutes or filed
with the corporate records reflecting the action taken. Action taken under
this Section 2.5 is effective when the last Director signs the consent,
unless the consent specifies a different prior or subsequent effective
date, in which case the action is effective on or as of the specified date.
A consent signed under this Section 2.5 shall have the same effect as a
unanimous vote of all members of the Board and may be described as such in
any document.
Section 2.6 Participation by Conference Telephone. The Board
of Directors may permit any or all Directors to participate in a regular or
special meeting by, or through the use of, any means of communication, such
as conference telephone, by which all Directors participating may
simultaneously hear each other during the meeting. A Director participating
in a meeting by such means shall be deemed to be present in person at the
meeting.
Section 2.7 Committees.
(a) The Board of Directors shall appoint an Audit
Committee comprised only of nonofficer members of the Board of Directors,
which shall arrange the details of the annual audit of the Corporation and
shall recommend to the Board of Directors independent auditors to be
presented for consideration by the shareholders. The Board of Directors
shall also appoint a Compensation Committee, comprised only of nonofficer
members of the Board of Directors, which shall make recommendations to the
Board of Directors concerning officers' salaries and other compensation.
(b) The Board of Directors may create one (1) or more
other committees and appoint members of the Board of Directors to serve on
them, by resolution of the Board of Directors adopted by a majority of all
the Directors in office when the resolution is adopted. Each committee may
have one (1) or more members, and all the members of a committee shall
serve at the pleasure of the Board of Directors.
(c) To the extent specified by the Board of Directors
in the resolution creating a committee, each committee may exercise all of
the authority of the Board of Directors; provided, however, that a
committee may not:
(i) authorize dividends or other
distributions, except a committee (or a senior executive officer of
the Corporation) may authorize or approve a reacquisition of shares
or other distribution if done according to a formula or method or
within a range prescribed by the Board of Directors;
(ii) approve or propose to shareholders
action that is required to be approved by shareholders;
(iii) fill vacancies on the Board of
Directors or on any of its committees;
(iv) amend the Corporation's Restated
Articles of Incorporation under IC 23-1- 38-2;
(v) adopt, amend, repeal, or waive
provisions of these Bylaws;
(vi) approve a plan of merger not
requiring shareholder approval; or
(vii) authorize or approve the issuance
or sale or a contract for sale of shares, or determine the
designation and relative rights, preferences, and limitations of a
class or series of shares, except that the Board of Directors may
authorize a committee (or a senior executive officer of the
Corporation) to do so within limits prescribed by the Board of
Directors.
(d) Except to the extent inconsistent with the
resolutions creating a committee, Sections 2.1 through 2.6 of these Bylaws,
which govern meetings, action without meetings, notice and waiver of
notice, quorum and voting requirements and telephone participation in
meetings of the Board of Directors, apply to each committee and its members
as well.
Section 2.8 Compensation. The Board of Directors may fix
fees and expenses paid to Directors for attending meetings, and any other
compensation paid to Directors by resolution.
ARTICLE III
Officers
Section 3.1 Designation, Selection and Terms. The officers
of the Corporation shall consist of a Chief Executive Officer (CEO) and/or
President, one or more Vice Presidents, Chief Financial Officer or
Treasurer, and Secretary. The Board of Directors may also elect such other
officers or assistant officers as it may from time to time determine by
resolution creating the office and defining the duties thereof. In
addition, the CEO or the President may, by a certificate of appointment
creating the office and defining the duties thereof delivered to the
Secretary for inclusion with the corporate records, from time to time
create and appoint such assistant officers as they deem desirable. The
officers of the Corporation shall be elected by the Board of Directors (or
appointed by the CEO or the President as provided above) and need not be
selected from among the members of the Board of Directors, except for the
Chairman of the Board, the CEO and/or President, who shall be members of
the Board of Directors. Any two (2) or more offices may be held by the same
person. All officers shall serve at the pleasure of the Board of Directors
and, with respect to officers appointed by the CEO or the President, also
at the pleasure of such officers. The election or appointment of an officer
does not itself create contract rights.
Section 3.2 Removal. The Board of Directors may remove any
officer at any time with or without cause. An officer appointed by the
Chairman of the Board or the President may also be removed at any time,
with or without cause, by either of such officers. Vacancies in such
offices, however occurring, may be filled by the Board of Directors at any
meeting of the Board of Directors (or by appointment by the Chairman of the
Board or the President to the extent provided in Section 3.1 of these
Bylaws).
Section 3.3 Chairman of the Board. The Chairman of the Board
shall be the chief executive and principal policy-making officer of the
Corporation. Subject to the authority of the Board of Directors, he shall
formulate the major policies to be pursued in the administration of the
Corporation's affairs. He shall study and make reports and recommendations
to the Board of Directors with respect to major problems and activities of
the Corporation and shall see that the established policies are placed into
effect and carried out under the direction of the President. The Chairman
of the Board shall, if present, preside at all meetings of the shareholders
and of the Board of Directors.
Section 3.4 President. Subject to the provisions of Section
3.3, the President shall be the chief operating officer of the Corporation,
shall exercise the powers and perform the duties which ordinarily appertain
to that office and shall manage and operate the business and affairs of the
Corporation in conformity with the policies established by the Board of
Directors and by the Chairman of the Board, or as may be provided for in
these Bylaws. In connection with the performance of his duties, he shall
keep the Chairman of the Board fully informed as to all phases of the
Corporation's activities. In the absence of the Chairman of the Board, the
President shall preside at meetings of the shareholders and of the Board of
Directors.
Section 3.5 Executive Vice President. The Executive Vice
President shall perform such duties as are assigned by the Board of
Directors or the President, shall perform the duties of the President in
case of the absence of the President and the Chairman of the Board, and
shall report to the President regarding his official activities.
Section 3.6 Vice Presidents. Each Vice President shall have
such powers and perform such duties as the Board of Directors may, from
time to time, prescribe and as the President may, from time to time,
delegate to him, and shall report to the President regarding his official
activities. The Board of Directors shall also be empowered to specifically
designate said Vice President as "Group Vice President," "Senior Vice
President," or with any other title descriptive of the Vice President's
position.
Section 3.7 Chief Financial Officer. The Chief Financial
Officer shall have charge of the Corporation's fiscal affairs and keep and
hold all moneys, bonds and securities belonging to the Corporation as
ordered by the Board of Directors. He shall keep or cause to be kept a
correct account and record of the financial affairs of the Corporation in
proper books. He shall report to the President regarding his official
activities. He shall also be responsible for causing the Corporation to
furnish financial statements to its shareholders pursuant to IC 23-1-53-1.
Section 3.7.1. Treasurer. If the Board of Directors shall
not elect a Chief Financial Officer, then it shall elect a Treasurer in
lieu of a Chief Financial Officer.
Section 3.8 Secretary. The Secretary shall be the custodian
of the books, papers and records of the Corporation and of its corporate
seal, if any, and shall be responsible for seeing that the Corporation
maintains the records required by IC 23-1-52-1 (other than accounting
records) and that the Corporation files with the Indiana Secretary of State
the annual report required by IC 23-1-53- 3. The Secretary shall be
responsible for preparing minutes of the meetings of the shareholders and
of the Board of Directors and for authenticating records of the
Corporation, and he shall perform all of the other duties usual in the
office of Secretary of a corporation. The Secretary shall report to the
President regarding his official activities.
Section 3.9 Assistant Officers. An assistant officer shall
have and perform the duties and powers of his principal in case of the
principal's absence or inability to act, and his duties shall be such as to
properly supplement the duties, powers, and functions of the principal
officer and as directed by such principal officer and the Board of
Directors; and such assistant officer shall report to his superior officer
and to the President as to his official activities.
Section 3.10 Salary. The Board of Directors may, at its
discretion, from time to time, fix the salary of any officer by resolution
included in the minute book of the Corporation.
ARTICLE IV
Checks
All checks, drafts or other orders for payment of money
shall be signed in the name of the Corporation by such officers or persons
as shall be designated from time to time by resolution adopted by the Board
of Directors and included in the minute book of the Corporation; and in the
absence of such designation, such checks, drafts or other orders for
payment shall be signed by either the President or the Chief Financial
Officer. If no Chief Financial Officer position exists, then said
responsibilities shall be performed by the Treasurer.
ARTICLE V
Loans
Any two of the Chairman of the Board, Chief Executive
Officer and/or President, Executive Vice President, or any Vice President,
Secretary, and/or Chief Financial Officer or Treasurer, are authorized and
empowered to negotiate and make any loan for money from any bank or banking
institution or other corporation or person, and to make, deliver and fully
execute any promissory note, or other evidence of indebtedness for or on
account of said borrowed money, and to accept the proceeds of said loan.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> MAY-31-1998
<CASH> 12,310
<SECURITIES> 0
<RECEIVABLES> 81,773
<ALLOWANCES> 3,929
<INVENTORY> 66,372 <F1>
<CURRENT-ASSETS> 163,083
<PP&E> 111,586 <F2>
<DEPRECIATION> 67,660
<TOTAL-ASSETS> 296,803
<CURRENT-LIABILITIES> 103,922
<BONDS> 55,000
<COMMON> 88,735 <F4>
16,866 <F3>
0
<OTHER-SE> (21,379)
<F5>
<TOTAL-LIABILITY-AND-EQUITY> 296,803
<SALES> 190,505
<TOTAL-REVENUES> 190,505
<CGS> 140,191 <F6>
<TOTAL-COSTS> 140,191
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,333
<INCOME-PRETAX> (2,369)
<INCOME-TAX> 809
<INCOME-CONTINUING> (3,178)
<DISCONTINUED> 0
<EXTRAORDINARY> (4,965)
<CHANGES> 0
<NET-INCOME> (8,143)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> (0.88)
<FN>
<F1> Represents gross inventory net of loss reserve.
<F2> Represents gross PP&E.
<F3> Represents redeemable preferred stock of $24,000 less Guaranteed ESOP of
$8,232 and treasury stock of $4,902
<F4> Represents common stock of $88,883 less treasury stock of $148.
<F5> Represents retained earnings of $946 less minimum pension liability of
$2,173 and foreign currency translation adjustments of $20,152.
<F6> Includes product development expenses and excludes depreciation and
amortization.
</TABLE>
