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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File No. 1-5375
TECHNITROL, INC.
(Exact name of registrant as specified in Charter)
PENNSYLVANIA 23-1292472
(State of Incorporation) (IRS Employer Identification Number)
1210 Northbrook Drive, Suite 385, Trevose, Pennsylvania 19053
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 215-355-2900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each Exchange on which registered
----------------------- -----------------------------------------
Common Stock
par value $.125 per share American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for at least the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates as of
February 17, 1995 is $90,322,000 computed by reference to the closing price
on the American Stock Exchange on such date.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of February 17, 1995.
Number of shares outstanding
Title of each class February 17, 1995
----------------------- ---------------------------------
Common Stock 6,021,452
par value $.125 per share
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT REFERENCE
Pages 2 to 8 of the Registrant's definitive Proxy Part III
Statement, dated April 17, 1995, to be used in Page 12 of 32 pages
connection with Registrant's 1995 Annual Meeting
of Shareholders
Page 1 of 32
PART I
ITEM I BUSINESS
Industry Segment Information
As a result of the acquisition of the Fil-Mag Group in January 1994
(discussed in Note 2 of Notes to Consolidated Financial Statements),
Technitrol, Inc. and its consolidated subsidiaries (collectively the
"Company") have redefined the business segments during the first quarter of
1994:
* The Fil-Mag Group has been added to the Electronic Products
Segment. The segment continues to also include the Company's Components
Division, but excludes the Products Division, Lloyd Instruments, Ltd.
("Lloyd Instruments") and John Chatillon & Sons, Inc. ("Chatillon"). As a
result, the Electronic Products Segment is now composed of the Company's
electronic components business.
* The Electrical Products Segment has become the Metallurgical
Products Segment. This segment includes the operations of Advanced
Metallurgy, Inc. ("AMI") and Chace Precision Metals, Inc. ("Chace").
AMI manufactures electrical contacts and assemblies for a wide range of
industrial customers. Separately, Chace produces thermostatic and clad
metal products for a broad market of industrial and consumer product
manufacturers.
* The Mechanical Products Segment no longer exists. A newly
configured segment, the End User/Finished Products Segment, includes the
Products Division, Lloyd Instruments, and Chatillon. The Products Division
manufactures document counters and dispensers, and markets its products
internationally through distributors and on an OEM basis. Lloyd
Instruments manufactures a comprehensive range of material testing systems
and markets its products throughout the world. Chatillon is composed of
two primary product families: (1) mechanical force measurement products
and mechanical scales, and (2) electronic force measurement products and
electronic scales. Chatillon's markets are numerous and international in
nature. It possesses multiple channels of marketing and distribution.
Identifiable assets are those assets that are utilized in each segment
to provide the respective products. Corporate assets are principally cash
and cash equivalents.
The Company's products are sold primarily to industrial customers
through the three segments described above. All business segments'
revenues are generally recognized when products are shipped. The majority
of the Company's sales are subject to credit terms prevalent in the
industries it serves. Receivables are written off when an account is
considered to be doubtful of collection. Management believes there are no
significant concentrations of credit risk.
Page 2 of 32
Industry Segment Financial Information (in thousands of dollars)
1994 1993 1992
- ------------------------------------------------------------------------------
Net sales
Electronic Products .............. $ 41,173 $ 9,375 $ 8,164
Metallurgical Products ........... 76,534 63,935 60,393
End User/Finished Products........ 28,737 27,147 29,997
-------- -------- --------
Total .......................... $146,444 $100,457 $ 98,554
======== ======== ========
Operating profit before income taxes
Electronic Products .............. $ 5,023 $ 1,678 $ 1,059
Metallurgical Products ........... 4,792 2,058 1,590
End User/Finished Products ....... 2,746 1,639 2,209
-------- -------- --------
Total operating profit ......... $ 12,561 $ 5,375 $ 4,858
Other income (expense), net ...... (1,172) (210) (519)
-------- -------- --------
Earnings before income taxes ... $ 11,389 $ 5,165 $ 4,339
======== ======== ========
Assets at end of year
Electronic Products .............. $ 25,054(a) $ 3,841 $ 3,769
Metallurgical Products ........... 37,054 34,317 35,178(b)
-------- -------- --------
End User/Finished Products ....... 14,086 12,432 13,370
Identifiable assets ............ $ 76,194 $ 50,590 $ 52,317
Corporate assets ................. 8,561 7,982 3,391
-------- -------- --------
Total .......................... $ 84,755 $ 58,572 $ 55,708
======== ======== ========
Capital expenditures
Electronic Products .............. $ 7,933(a) $ 238 $ 262
Metallurgical Products ........... 2,288 2,191 8,204(b)
End User/Finished Products ....... 569 226 429
-------- -------- --------
Total .......................... $ 10,790 $ 2,655 $ 8,895
======== ======== ========
Depreciation and amortization
Electronic Products .............. $ 1,502(a) $ 646 $ 419
Metallurgical Products ........... 3,205 3,692 3,920(b)
End User/Finished Products ....... 564 653 629
-------- -------- --------
Total .......................... $ 5,271 $ 4,991 $ 4,968
======== ======== ========
(a) Includes property, plant and equipment acquired as part of the
acquisition of the Fil-Mag Group. See Note 2 to Consolidated
Financial Statements.
(b) Includes property, plant and equipment acquired as part of the
acquisition of Doduco Corporation. See Note 2 to Consolidated
Financial Statements.
In 1994, one customer accounted for slightly more than 10% of
consolidated sales. The customer is a Fortune 150 entity principally doing
business with the Metallurgical Products Segment. The loss of that
customer could have a material adverse effect on the Company. Another
customer, then a Fortune 50 entity principally doing business with the
Metallurgical Products Segment, produced revenues slightly exceeding 10% of
total sales in 1993 and 1992. Sales to the Company's ten largest customers
accounted for 38% of sales in 1994, 42% in 1993 and 41% in 1992.
Export sales from the United States totalled $14.0 million in 1994,
$11.5 million in 1993 and $13.2 million in 1992. There has been no
concentration of sales in any particular domestic or international
geographic area. The Company's operations are divided into three
geographic areas: Domestic, Far East, and All Other Foreign. Substantially
all of the revenues, earnings and identifiable assets in the Far East are
located in Taiwan and the Philippines. No more than 10% of consolidated
revenues, pre-tax earnings or total assets are located in any one foreign
country outside of the Far East.
Page 3 of 32
Geographic Information (in thousands of dollars)
1994 1993 1992
- -------------------------------------------------------------------------------
Sales to unaffiliated customers, from
United States ..................... $121,051 $ 92,976 $ 90,201
Far East .......................... 16,036 -- --
All Other Foreign ................. 9,357 7,481 8,353
-------- -------- --------
Total ........................... $146,444 $100,457 $ 98,554
======== ======== ========
Affiliate sales or transfers, from
United States ..................... $ 62 $ 122 $ 112
Far East .......................... 10,141 -- --
All Other Foreign ................. 629 615 634
-------- -------- --------
Total ........................... $ 10,832 $ 737 $ 746
======== ======== ========
Operating Profit
United States ..................... $ 9,032 $ 4,814 $ 4,850
Far East .......................... 2,473 -- --
All Other Foreign ................. 901 603 53
Eliminations ...................... 155 (42) (45)
-------- -------- --------
Total ........................... $ 12,561 $ 5,375 $ 4,858
======== ======== ========
Identifiable assets
United States ..................... $ 60,645 $ 53,601 $ 51,786
Far East .......................... 17,439 -- --
All Other Foreign ................. 6,671 4,971 3,922
-------- -------- --------
Total ........................... $ 84,755 $ 58,572 $ 55,708
======== ======== ========
Sales and Marketing
Sales and marketing are accomplished by sales management, district
managers, direct salesmen, representatives, agents, dealers and
distributors.
Competition
The business of the Company is highly competitive, and with respect to
each of its products, it faces competition from numerous firms, many of
which are larger and possess greater financial resources.
Backlog
As of December 31, 1994, the Company's backlog of orders was $28.7
million compared to $14.9 million at the end of 1993. Substantially all
of the current backlog is scheduled for completion during the first six
months of 1995. Most orders are subject to cancellation upon payment of
normal cancellation charges. Normal delivery time for the Company's
products is less than thirteen weeks. No material portion of the Company's
business is seasonal in nature.
Raw Materials
In its diverse manufacturing operations, the Company is not dependent
upon any particular source of supply. However, there are relatively few
suppliers of ferrite materials used in electronic components, powder metals
used in electrical contacts, and specialty steel used in metal laminates.
The Company has not encountered any significant difficulties in
obtaining adequate supplies of these raw materials for manufacture of its
products. One of the Company's subsidiaries engages in a business which
utilizes silver as a raw material component. This material has been
readily available and is anticipated to remain so.
Patents and Licenses
Although the Company possesses several patents and many trademarks and
tradenames which are used in the conduct of its businesses, the Company
does not consider its consolidated earnings to be materially dependent upon
any one patent, trademark or license.
Page 4 of 32
Research and Development
The Company does not engage in any basic research activities. Such
research as is conducted is performed by its engineering personnel and is
directed primarily toward the development of new products related to its
current product lines and the improvement and enhancement of existing
products.
Environment
Expenditures required for the Company to meet or exceed Federal, state
and local provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment,
are not expected to have any material effect on capital expenditures,
earnings or competitive position.
The Company is involved in several matters relating to superfund
sites. The Company's involvement has generally arisen from the alleged
disposal by licensed waste haulers of small amounts of waste material many
years ago at these sites. The Company has previously expensed amounts
which it believes to be sufficient to cover the aggregate amount of the
ultimate liability, if any, which the Company believes to be reasonably
possible at this time.
Employees
At December 31, 1994, the Company had 3,141 full time employees
compared with 1,048 at the end of 1993.
Energy
The Company did not experience any curtailment of supplies of
electricity, gas or oil in 1994, and does not expect any curtailment in
1995.
ITEM 2 PROPERTIES
The following properties were owned or leased by the Company at
December 31, 1994. The Trevose and Philadelphia locations are used in more
than one business segment. All other properties are used exclusively in
one segment, as identified.
Approx Owned/ Lease % Used
Location Square Ft. Leased Ending for Mfg. Comments
- ------------------------------------------------------------------------------
Trevose, PA 4,000 Leased 2001 0 Corporate
headquarters
Philadelphia, PA 70,000 Owned 40
Electronic Products
Greensboro, MD 20,000 Owned 95
San Diego, CA 17,000 Leased 1999 0
Kaohsiung, Taiwan 51,000 Owned 55 Building is owned;
land is leased
through 2003
Cavite, Philippines 26,000 Owned 60 Building is owned;
land is leased
through 2007
Singapore 1,000 Leased 1995 0
Tours, France 1,000 Leased 2003 0
Page 5 of 32
Approx Owned/ Lease % Used
Location Square Ft. Leased Ending for Mfg. Comments
- ------------------------------------------------------------------------------
Metallurgical Products
Export, PA 115,000 Leased 2001 80
McKeesport, PA 23,000 Leased 2004 65
Delmont, PA 30,000 Owned 90
Lancaster, PA 15,000 Leased 1996 90
Cedar Knolls, NJ 48,000 Owned 65
Reidsville, NC 250,000 Owned 55
Luquillo, P.R. 32,000 Owned 80
Luquillo, P.R. 12,000 Leased 1998 40
End User/Finished Products
Feasterville, PA 2,000 Leased 1995 0
Kew Gardens, NY 67,000 Owned 75
Greensboro, NC 23,000 Owned 60
Fareham, England 22,000 Leased 2004 50
Wuppertal, Germany 20,000 Leased 1995 70
Versailles, France 2,000 Leased 1997 0
The Company believes its facilities to be adequate for its present
needs.
ITEM 3 PENDING LEGAL PROCEEDINGS
The Company is a defendant in several lawsuits which it considers to
be in the normal course of business, none of which is expected to have a
material adverse effect on the Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- NONE
Page 6 of 32
PART II
ITEM 5 MARKET PRICE OF REGISTRANT'S COMMON STOCK AND
RELATED SECURITY MATTERS
Technitrol Inc.'s common stock is traded on the American Stock
Exchange. The following table reflects the high and low sales prices on
such Exchange and the dividends paid to shareholders in each quarterly
period during Technitrol's last two fiscal years.
QUARTER 1ST 2ND 3RD 4TH
- --------------------------------------------------------------------------
1994 HIGH $11.792 $12.917 $14.500 $16.000
1994 LOW $9.875 $10.875 $11.583 $12.000
1994 DIVIDENDS PAID $.093 $.093 $.093 $.095
1993 HIGH $9.125 $8.500 $9.250 $10.125
1993 LOW $8.250 $7.583 $7.750 $8.208
1993 DIVIDENDS PAID $.093 $.093 $.093 $.093
The relevant amounts have been restated to reflect a 200% stock
dividend on September 18, 1994.
The approximate number of holders of record of the common stock,
Technitrol Inc.'s only class of stock outstanding, as of January 13, 1995
was:
TITLE OF CLASS NUMBER OF SHAREHOLDERS
-------------------------- ----------------------
Common Stock 676
par value $.125 per share
Page 7 of 32
ITEM 6 SELECTED FINANCIAL DATA LAST 5 YEARS (in thousands of dollars, except share data)
1994 1993(a) 1992(a) 1991(a) 1990(a)
- -----------------------------------------------------------------------------------------------------
Net sales $ 146,444 $ 100,457 $ 98,554 $ 81,169 $ 83,614
Net earnings $ 6,944 $3,356(b) $ 2,838 $ 2,767 $ 4,624
Earnings per share $ 1.15 $ .56(b) $ .48 $ .47 $ .78
Total assets $ 84,755 $ 58,572 $ 55,708 $ 52,512 $ 51,552
Long-term debt $ 15,124 $ 5,146 $ 6,867 $ 4,965 $ 7,303
Net worth $ 45,757 $ 40,294 $ 38,657 $ 38,303 $ 37,442
Net worth per share $ 7.60 $ 6.73 $ 6.48 $ 6.46 $ 6.36
Working capital $ 30,160 $ 24,056 $ 23,178 $ 23,161 $ 26,328
Working capital ratio 2.3 to 1 2.8 to 1 3.3 to 1 3.0 to 1 3.9 to 1
Number of shares outstanding:
Weighted average 6,015,156 5,989,218 5,960,682 5,920,440 5,931,528
Year end 6,021,452 5,986,467 5,970,087 5,928,675 5,889,000
Dividends declared per share $ .376 $ .373 $ .373 $ .373 $ .373
Price range per share:
High $ 16.00 $ 10.125 $ 11.00 $ 9.875 $ 13.75
Low $ 9.875 $ 7.583 $ 6.625 $ 8.08 $ 6.75
(a) Per share amounts and shares outstanding have been restated to reflect a 200% stock dividend on
September 18, 1994.
(b) Excludes cumulative effect of a change in accounting for income taxes. (See Note 6 to the
Consolidated Financial Statements.)
Page 8 of 32
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash and cash equivalents totalled $8.7 million at December 31, 1994,
compared to $7.7 million a year earlier. Working capital was $30.2
million, compared to $24.1 million at December 31, 1993. Contributing to
the year-to-year increase in working capital was the 1994 acquisition of
the Fil-Mag Group as discussed below.
Cash provided by operating activities was $9.6 million. The positive
cash flow was composed mainly of net earnings of $6.9 million; depreciation
and amortization of $5.3 million; and increases in accounts payable ($1.1
million) and accrued expenses ($3.9 million). A cash decrease due to
deferred tax benefits was offset by an increase in income taxes payable.
Cash was consumed by increases in accounts receivable ($4.6 million) and
inventories ($2.5 million). Those increases were caused by the increase in
sales from 1993 to 1994.
Investing activities consumed $13 million during 1994. Capital
expenditures constituted $4.4 million, excluding acquisitions. Separately,
$8.8 million was paid for the capital stock of the Fil-Mag Group, net of
cash acquired. Financing for the acquisition was provided by drawing down
approximately $10 million on a temporary acquisition line of credit from
CoreStates Bank, N.A., which was subsequently replaced by a three year
revolving credit loan. Projected 1995 capital expenditures are expected to
be financed by internally generated funds.
Cash provided by financing activities was a net $4.2 million. The
aforementioned $10 million loan was the source of funds. Cash consumed by
financing activities was due to combined debt reduction of $3.5 million,
and $2.3 million of dividend payments. It is expected that dividends will
continue to be paid on a quarterly basis during 1995.
The Company's foreign sales are conducted primarily through its foreign
subsidiaries, principally in the Far East and Europe. In the Far East, the
Company's sales are denominated primarily in U.S. dollars. In Europe, sales
are denominated primarily in local currencies (consisting mainly of English
pounds and French francs) and to a lesser extent in U.S. dollars.
Since a very significant portion of the Company's foreign sales are
denominated in U.S. dollars, the Company does not believe that its potential
exposure to currency fluctuations is material to its business. During 1993
and 1994, the Company did not purchase any currency exchange forward contracts
or similar instruments generally utilized to reduce the risk of currency
fluctuations. The Company will reexamine this policy if sales denominated
in currencies other than U.S. dollars become material to operations.
Balance Sheet Composition at December 31:
1994 1993 1994 1993
- -------------------------------------------------------------------------------
Cash and cash equivalents 10% 13% Current liabilities 28% 22%
Other current assets 53% 50% Long-term debt 18% 9%
Property, plant, and equipment 29% 32% Shareholders' equity 54% 69%
Other assets 8% 5%
---- ---- ---- ----
Total 100% 100% 100% 100%
==== ==== ==== ====
Page 9 of 32
RESULTS OF OPERATIONS
In 1994:
In 1994, sales were $146.4 million compared to $100.5 million in 1993.
The 45.7% increase was due to the $30.8 million sales of the Fil-Mag Group,
acquired in January 1994, and a combined sales increase of $15.1 million
realized by the other businesses of the Company. All three of the
Company's segments experienced increased sales in 1994 from 1993.
The December 31 backlog was $28.7 million in 1994 and $14.9 million in
1993. Contributing to the increase was the Fil-Mag Group's backlog.
The increase in sales of the Electronic Products Segment to $41.2
million included the sales of the Fil-Mag Group as noted above. Operating
profit of the Electronics Products Segment increased to $5.0 million in
1994, compared to $1.7 million in the prior year. The increase reflected
the fifty weeks of profits of the Fil-Mag Group since its acquisition in
January 1994. As a percentage of sales, this segment's annual operating
profits equaled 12.2% which was the highest of the Company's three product
segments. Year end backlog and order volumes indicated a softening in the
segment's domestic markets, while offshore demand remained relatively
strong.
The Metallurgical Products Segment produced increased sales, operating
profit and operating profit as a function of sales in 1994 as compared to
1993. AMI experienced its largest sales and profit improvements to the
product line which was acquired from Engelhard Corporation in 1991.
Housing starts continue to have an eventual impact on demand for various
AMI products. Management is monitoring the indirect effect that recent
interest rate increases will have on AMI backlog levels which were stable
entering the first quarter of 1995. Separately, Chace sales and operating
profits also grew year-to-year. On-going efforts aimed at cost containment
and quality improvements have contributed to the growth in sales volume and
profits. Chace's proven ability to compete in a demanding industrial market
was reflected by a strong backlog position as it began the new year.
Two of the three operating units which constitute the End
User/Finished Products Segment experienced an increase in sales and
operating profits. Chatillon sales volume and profitability improved in
its primary product families, as the improved economic climate contributed
to more favorable market conditions. Lloyd's year-to-year sales increase
reflected incremental unit sales and the absence of the unfavorable
currency translation which negatively impacted 1993 results. Lower sales
and operating profit occurred at the Company's Products Division. Domestic
demand for currency counters and dispensers decreased during 1994, which
was also the first full year subsequent to the Division withdrawing as a
provider of engineering services on a prime contract basis to an agency of
the U.S. Government.
The Company's selling, general and administrative expenses increased
to $27.3 million in 1994 from $19.4 million in 1993. The key reason for the
increase was the addition of the Fil-Mag Group.
Interest expense grew to $1.1 million, caused by the $10 million
increase in outstanding debt to fund the Fil-Mag Group acquisition and
rising interest rates during the year.
1994 income tax expenses increased as a function of pre-tax earnings.
The 1994 effective income tax rate rose to 39% from 35% in 1993 as a result
of proportionately higher taxable income being earned by the Company's
domestic operations. Effective income tax rates of the domestic operations
generally exceed those of the Company's offshore operations.
Page 10 of 32
In 1993:
Sales increased by 1.9% to $100.5 million in 1993. The sales
increases of the Electronic Products Segment and the Metallurgical Products
Segment exceeded the sales decrease experienced by the End User/Finished
Products Segment.
The backlog on December 31, 1993 was $14.9 million, compared to $14.2
million on December 31, 1992.
The Electronic Products Segment sales increased to $9.4 million from
$8.2 million in 1992. Sales of the Metallurgical Products Segment
increased to $63.9 million in 1993 from $60.4 million. The 1993 year
marked the first full year of operation at the Export, PA, facility which
includes the product line acquired from Engelhard Corporation in August
1991 and relocated during 1992. End User/Finished Products Segment sales
decreased from $30 million to $27.1 million. This reflected a volume
decrease in currency counters and dispensers in the Products Division.
Separately, that division withdrew as a provider of engineering services on
a prime contract basis to an agency of the U.S. Government. Also causing
the sales decline of the segment were unfavorable currency translation of
the sales of Lloyd Instruments Ltd., a U.K. Company, and a decrease in the
sales of electronic products of Chatillon.
Total 1993 gross profit dollars approximated those of 1992. However,
as a percentage of sales, 1993 gross profit dropped slightly to 24.6% from
25.2% in 1992. Contributing to the decrease were inventory write-offs and
high production costs incurred at the Export, PA, facility of the
Metallurgical Products Segment and the cost associated with the Petersburg,
PA, plant shutdown of the Electronic Products Segment.
Selling, general and administrative expenses decreased to $19.4
million in 1993, compared to $20 million during the previous year. The
decrease reflected the non-recurring 1992 expenses associated with AMI-DDC
(see Note 2 to Consolidated Financial Statements) and relocating the
Engelhard product line.
Operating Profit of $5.4 million in 1993 represented a 10.6% increase
from year-to-year. The Electronic Products Segment contributed to the
increase, with the Components Division experiencing stronger profits in
1993 as a result of on-going cost reduction efforts. The operating profit
increase of the Metallurgical Products Segment included improved earnings
of the established operations of AMI and the first full year of
contribution of AMI-DDC exceeding a decrease in profitability on the part
of the product line acquired from Engelhard. The major markets of AMI
remained cyclical and reflected general trends in housing, automotive,
appliances and capital equipment. Improved profits were realized by Chace,
as cost improvement programs yielded their intended results. Regarding the
End User/Finished Products Segment, weak demand caused a decrease in
profitability at the Products Division and flat earnings on certain
Chatillon products, which more than offset improved profits realized by
Lloyd Instruments Ltd.
Interest expense decreased to $0.4 million in 1993 due to lower
interest rates and a reduction in the amount of debt outstanding.
Income tax expenses increased proportionate to 1993 pre-tax earnings,
with the 35% effective income tax rate unchanged from the prior year.
Contributing to the flat effective rate were increased earnings of the
operation in Puerto Rico, which is exempt from U.S. Federal income taxes.
The Company adopted Financial Accounting Standard No. 109, "Accounting
for Income Taxes," during 1993. As a result, $261,000 of favorable
cumulative effect on prior years was added to 1993 net earnings.
Page 11 of 32
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, notes to the
consolidated financial statements, together with the opinion of the
Company's independent auditors and the supplementary financial information
required by this item are attached hereto and made part hereof.
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - NONE
PART III
CROSS REFERENCE INDEX
FORM 10-K
ITEM NUMBER AND CAPTION INCORPORATED MATERIAL
------------------------------ -----------------------------------
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, REGISTRANT'S DEFINITIVE PROXY
PROMOTERS & CONTROL PERSONS STATEMENT PGS. 3, 4 & 5
ITEM 11 EXECUTIVE COMPENSATION REGISTRANT'S DEFINITIVE PROXY
STATEMENT PGS. 6 & 7
ITEM 12 SECURITY OWNERSHIP OF CERTAIN REGISTRANT'S DEFINITIVE PROXY
BENEFICIAL OWNERS AND STATEMENT PGS. 2 & 3
MANAGEMENT
ITEM 13 CERTAIN RELATIONSHIPS AND REGISTRANT'S DEFINITIVE PROXY
RELATED TRANSACTIONS STATEMENT PGS. 3, 4 & 5
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Earnings and Retained Earnings - Years
ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows - Years ended
December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
(b) Technitrol, Inc. filed a report on Form 8-K on January 31, 1994
regarding the acquisition of all shares of capital stock of Fee
Fil-Mag Taiwan Corporation, Fee Fil-Mag Singapore Pte. Corporation,
and Fil-Mag, Inc.
(c) Exhibits
(21) Subsidiaries of the Registrant
(23) Consent of Certified Public Accountants
(27) Financial Data Schedule (electronic filing only)
Page 12 of 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNITROL, INC.
By /s/Roy E. Hock
--------------------------------
Roy E. Hock
Chairman (Principal Executive
Officer)
Date March 21, 1995
--------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/Roy E. Hock By /s/Albert Thorp, III
-------------------------------- -------------------------------
Roy E. Hock Albert Thorp, III
Chairman of the Board of Directors Controller
and Chief Executive Officer (Principal Accounting Officer)
Date March 21, 1995 Date March 21, 1995
-------------------------------- -------------------------------
By /s/Thomas J. Flakoll By /s/Stanley E. Basara
-------------------------------- -------------------------------
Thomas J. Flakoll Stanley E. Basara
President and Director Director
Date March 21, 1995 Date March 21, 1995
-------------------------------- -------------------------------
By /s/James J. Rafferty, Jr. By /s/John E. Burrows, Jr.
-------------------------------- -------------------------------
James J. Rafferty, Jr. John E. Burrows, Jr.
Vice President and Director Director
Date March 21, 1995 Date March 21, 1995
-------------------------------- -------------------------------
By /s/J. Barton Harrison By /s/Graham Humes
-------------------------------- -------------------------------
J. Barton Harrison Graham Humes
Secretary and Director Director
Date March 21, 1995 Date March 21, 1995
-------------------------------- -------------------------------
By /s/Robert J. Citrino By /s/Edward M. Mazze
-------------------------------- -------------------------------
Robert J. Citrino Edward M. Mazze
Treasurer Director
(Principal Financial Officer)
Date March 21, 1995 Date March 21, 1995
-------------------------------- -------------------------------
By /s/Michael J. Kirchoff By /s/James M. Papada, III
-------------------------------- -------------------------------
Michael J. Kirchoff James M. Papada, III
Vice President Director
Date March 21, 1995 Date March 21, 1995
-------------------------------- -------------------------------
Page 13 of 32
INDEX TO FINANCIAL STATEMENTS
Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Earnings and Retained Earnings - Years ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993
and 1992
Notes to Consolidated Financial Statements
Page 14 of 32
Independent Auditors' Report
The Board of Directors and Shareholders
Technitrol, Inc.:
We have audited the consolidated financial statements of Technitrol, Inc.
and subsidiaries as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Technitrol, Inc. and subsidiaries at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in note 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 3, 1995
Page 15 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
In thousands of dollars, except for share data
Assets 1994 1993
- ---------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 8,716 $ 7,721
Receivables:
Trade 22,614 13,389
Other 139 88
Inventories:
Finished goods 5,471 4,281
Work in process 8,420 5,991
Raw materials and supplies 7,823 5,169
------- -------
Total inventories 21,714 15,441
Prepaid expenses 851 549
------- -------
Total current assets 54,034 37,188
Property, plant and equipment 55,180 45,729
------- -------
Less accumulated depreciation 30,809 26,922
Net property, plant and equipment 24,371 18,807
Deferred income taxes 2,409 1,605
Other assets 3,941 972
------- -------
$84,755 $58,572
======= =======
Liabilities and Shareholders' Equity 1994 1993
- ---------------------------------------------------------------------------
Current liabilities:
Current installments of long-term debt $ 22 $ 21
Short-term debt 756 --
Accounts payable 5,841 3,718
Income taxes payable 1,916 716
Dividends payable 572 559
Accrued payroll 3,118 1,499
Accrued pension expense 4,589 3,002
Other accrued expenses 7,060 3,617
------- -------
Total current liabilities 23,874 13,132
------- -------
Long-term debt, excluding current installments 15,124 5,146
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock, $.125 par. Authorized 10,000,000
shares; 8,943,960 shares issued in 1994 and
2,981,320 in 1993 1,118 373
Additional paid-in capital 4,329 3,926
Retained earnings 45,923 41,993
------- -------
51,370 46,292
Less: Cost of treasury stock (2,922,508 shares
in 1994, and 985,831 shares in 1993) (4,573) (4,628)
Unearned compensation under stock award plan (560) (485)
Cumulative translation adjustment (480) (885)
------- -------
Total shareholders' equity 45,757 40,294
======= =======
$84,755 $58,572
See accompanying notes to consolidated financial statements.
Page 16 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings and Retained Earnings
Years ended December 31, 1994, 1993 and 1992
In thousands of dollars, except per share data
1994 1993 1992
- -------------------------------------------------------------------------------
Net sales $146,444 $100,457 $ 98,554
Cost of sales 106,609 75,705 73,677
-------- -------- --------
Gross profit 39,835 24,752 24,877
Selling, general and administrative expenses 27,274 19,377 20,019
-------- -------- --------
Operating profit 12,561 5,375 4,858
Other income (expense):
Interest income 140 108 89
Interest expense (1,130) (389) (717)
Other, net (182) 71 109
-------- -------- --------
(1,172) (210) (519)
-------- -------- --------
Earnings before income taxes 11,389 5,165 4,339
Income taxes 4,445 1,809 1,501
-------- -------- --------
Net earnings before cumulative effect of a
change in accounting for income taxes $ 6,944 $ 3,356 $ 2,838
Cumulative effect on prior years (to
January 1, 1993) of a change in
accounting for income taxes (Note 6) -- 261 --
-------- -------- --------
Net earnings $ 6,944 $ 3,617 $ 2,838
======== ======== ========
Earnings per share:
Before cumulative effect of a change in
accounting for income taxes $ 1.15 $ .56 $ .48
Cumulative effect of a change in accounting
for income taxes $ -- $ .04 $ --
-------- -------- --------
Total earnings per share $ 1.15 $ .60 $ .48
======== ======== ========
Retained earnings:
Balance at beginning of year $ 41,993 $ 40,614 $ 40,005
Net earnings for the year 6,944 3,617 2,838
-------- -------- --------
$ 48,937 $ 44,231 $ 42,843
200% Common stock dividend 745 -- --
Cash dividends declared:
($.376 per share in 1994 and $.373
per share in 1993 and 1992) 2,269 2,238 2,229
-------- -------- --------
Balance at end of year $ 45,923 $ 41,993 $ 40,614
======== ======== ========
See accompanying notes to consolidated financial statements.
Page 17 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993, and 1992
In thousands of dollars
1994 1993 1992
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 6,944 $ 3,617 $ 2,838
Cumulative effect of a change in accounting
for income taxes -- (261) --
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 5,271 4,991 4,968
Loss (gain) on disposal of equipment 88 (60) 40
Changes in assets and liabilities net of
effect of acquisitions:
Increase in deferred tax benefits (1,019) (492) (673)
Increase(decrease) in income taxes payable 1,055 798 (376)
Increase(decrease) in accounts payable 1,082 689 (44)
Increase in accrued expenses 3,912 981 60
(Increase)decrease in accounts receivable (4,626) 142 (192)
(Increase)decrease in inventories (2,482) 1,031 (760)
Other, net (607) 108 763
------- ------- -------
Net cash provided by operating activities 9,618 11,544 6,624
Cash flows from investing activities:
Acquisition of capital stock of the Fil-Mag
Group, net of cash acquired (8,805) -- --
Acquisition of capital stock of
Doduco Corporation, net of cash acquired -- -- (441)
Sales or maturities of marketable securities 1 4 1
Capital expenditures, exclusive
of acquisitions (4,429) (2,655) (3,674)
Proceeds from sale of property,
plant and equipment 282 71 54
------- ------- -------
Net cash used in investing activities (12,951) (2,580) (4,060)
------- ------- -------
Cash flows from financing activities:
Repayment of Fil-Mag Group funded
indebtedness (1,014) -- --
Principal payments on long-term debt (21) (8,421) (10,678)
Net repayments of short term debt (2,504) -- --
Proceeds of long-term borrowings 10,000 6,700 12,600
Repayment of Doduco Corporation funded
indebtedness -- -- (6,120)
Dividends paid (2,255) (2,237) (2,224)
------- ------- -------
Net cash provided by (used in)
financing activities 4,206 (3,958) (6,422)
------- ------- -------
Net effect of exchange rate changes
on cash 122 (33) (71)
Net increase(decrease) in cash and
cash equivalents 995 4,973 (3,929)
Cash and cash equivalents at beginning of year 7,721 2,748 6,677
------- ------- -------
Cash and cash equivalents at end of year $ 8,716 $ 7,721 $ 2,748
======= ======= =======
See accompanying notes to consolidated financial statements.
Page 18 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
Technitrol, Inc. (the "Company") and all of its subsidiaries. All material
intercompany accounts and transactions are eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include funds invested in a variety of
liquid short-term investments with a maturity of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method. In addition to the
inventories included in the accompanying balance sheets, the Company has
custody of inventories on consignment from suppliers ($14,063,000 at
December 31, 1994 and $11,092,000 at December 31, 1993).
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
based upon the estimated useful life of the assets and has been provided
for on both the accelerated and the straight line methods. Expenditures
for maintenance and repairs are charged to operations as incurred, and
major renewals and betterments are capitalized. Upon sale or retirement,
the cost of the asset and related accumulated depreciation are removed from
the balance sheet, and any resulting gains or losses are included in
earnings.
Excess of Cost over Net Assets
Excess of cost over net assets acquired (which the Company believes
has continuing value) is being amortized on a straight-line basis over 15
years. The recoverability of the carrying value of intangible assets is
evaluated on a recurring basis.
Earnings per Share
Earnings per share are calculated based on the weighted average number
of common shares outstanding. Earnings per share for prior years have been
restated to reflect a 200% stock dividend recorded on September 18, 1994.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries have
been translated into U.S. dollars in accordance with Financial Accounting
Standards Board Statement No. 52. All balance sheet accounts have been
translated using the year-end exchange rate and all income statement
accounts have been translated using the average exchange rate for the year.
The gains and losses resulting from the change in exchange rates from the
date of acquisition to the current balance sheet date have been reported
separately as a component of shareholders' equity. Transaction gains and
losses are recorded in the statement of earnings for the year in which they
occur.
(continued)
Page 19 of 32
2
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Acquisitions
On January 17, 1994, the Company, through its wholly-owned subsidiary,
Technitrol International, Inc., a Delaware corporation, acquired from FEE
Technology, S.A. all of the issued and outstanding capital stock of FEE
Fil-Mag Taiwan Corporation ("FFT"), FEE Fil-Mag Singapore Pte. Corporation
("FFS") and Fil-Mag, Inc. ("FMI"). FFT, FFS and FMI are referred to below
as the "Fil-Mag Group". The Fil-Mag Group is a supplier of magnetic
components to domestic and international manufacturers of PCs, network
interface cards, network controllers and other devices that are connected
to data communications networks such as Token Ring and Ethernet. The Fil-
Mag Group conducts manufacturing operations in its plants in Taiwan and the
Philippines; engineering activities at its San Diego, California location;
and sales operations through offices in France, Singapore and San Diego.
The Company intends to continue the businesses of the Fil-Mag Group at
their current locations.
The purchase price was $9,082,000 (net of expenses). In addition, the
Company caused FMI to repay to FEE Technology, S.A. approximately $1
million of indebtedness. FFT was indebted to local banks in the amount of
approximately $3.3 million, of which approximately $2.5 million was retired
during 1994. The purchase price and the $1 million debt repayment were
financed by borrowing $10 million under a temporary acquisition line of
credit and cash on-hand of approximately $400,000.
The purchase price was arrived at pursuant to arms-length
negotiations, taking into account all pertinent factors including, but not
limited to, the nature, monetary and strategic value of the assets being
acquired, the businesses and business prospects of each member of the Fil-
Mag Group and the synergies of the businesses of the Fil-Mag Group with the
operations of the Components Division of the Company. The assets acquired
had a fair value of approximately $18.0 million, including current assets
of $9.0 million and approximately $2.5 million of goodwill associated with
the acquisition. Liabilities assumed totaled $8.6 million.
Subsequent to the acquisition, eight key employees of the Fil-Mag
Group entered into a covenant against competition with the Company in
exchange for which the Fil-Mag Group paid them, in the aggregate, $1
million during the twelve months subsequent to the acquisition. The $1
million was financed by cash on-hand.
The acquisition has been accounted for by the purchase method of
accounting. Had the business been acquired on January 1, 1993, unaudited
consolidated pro forma results would have been:
Year ended
December 31, 1993
------------------
Sales $130.1 million
Net earnings $ 4.3 million
Net earnings per share $ .76
(continued)
Page 20 of 32
3
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Acquisitions, continued
The activity of the Fil-Mag Group for the period from January 1 to January
17, 1994, was not material to the consolidated results of the Company.
This unaudited pro forma information is provided for comparative
purposes only. It does not purport to be indicative of the results that
actually would have occurred if the acquisition had been consummated on the
date indicated or which may be obtained in the future.
On February 12, 1992, the Company purchased all of the issued and
outstanding shares of the capital stock of Doduco Corporation. Upon
acquisition, the name of the acquired business was changed to AMI-DDC, Inc.
("AMI-DDC"). AMI-DDC is engaged in the business of manufacturing
electrical contacts. The cost of the acquisition amounted to $728,000,
consisting of $111,000 of acquisition costs and $617,000 cash paid for all
outstanding shares of common stock. Funded indebtedness of AMI-DDC of $3.6
million was repaid during March of 1992, and an additional $2.5 million was
repaid in April of 1992. The purchase price and debt repayments were
financed by borrowing $5.9 million under a revolving credit loan (with a
maximum draw of $6 million) and cash on hand of approximately $1.1 million.
The acquisition was accounted for by the purchase method of
accounting. Had the business been acquired on January 1, 1992, pro forma
results of operations would have been:
Year Ended
Dec. 31, 1992
----------------
Sales $99.4 million
Net earnings $ 2.9 million
Net earnings per share $ .48
This unaudited pro forma information is provided for comparative
purposes only. It does not purport to be indicative of the results that
actually would have occurred if the acquisition had been consummated on the
date indicated or which may be attained in the future.
(3) Property, Plant and Equipment
Components of property, plant and equipment were as follows (in
thousands):
1994 1993
----------------------
Land $ 1,044 $ 1,044
Buildings and improvements 15,074 12,400
Machinery and equipment 39,062 32,285
------- -------
$55,180 $45,729
======= =======
(continued)
Page 21 of 32
4
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(4) Long-term Debt
Long-term debt was as follows (in thousands):
1994 1993
- -------------------------------------------------------------------------------
Bank Loans
Variable-rate (LIBOR plus 0.875%) bank loan facility
with $8.3 million maximum draw, due May 1997
(4.125% rate at December 31, 1993) $ -- $5,000
------- ------
Variable-rate (LIBOR plus 0.75%) bank loan facility
with $20.0 million maximum draw, due March 1997
(6.97% rate at December 31, 1994) $15,000 $ --
------- ------
Total bank loans $15,000 $5,000
Mortgage Notes, secured by mortgages on land, buildings,
and certain equipment:
4.5% mortgage notes, due in monthly installments
until 2000 146 167
------- ------
Total long-term debt 15,146 5,167
Less current installments 22 21
------- ------
Long-term debt excluding current installments $15,124 $5,146
======= ======
Principal payments due within the next five years are as follows (in
thousands):
Principal
---------
1995 $ 22
1996 23
1997 15,024
1998 25
1999 26
In January 1994, the Company borrowed $10 million under a temporary
acquisition line of credit as described in Note 2. In March 1994, this
amount was refinanced along with the $5 million outstanding at December 31,
1993, into a single variable-rate revolving bank loan facility with a
maximum draw of $20 million, maturing in March 1997. On February 9, 1995,
$2 million of the $15 million outstanding at December 31, 1994 was repaid
and the committed facility was reduced from $20 million to $13 million.
The Bank Loan facilities are unsecured and contain certain covenants
requiring maintenance of minimum net worth and other customary and normal
provisions. The Company is in compliance with all such covenants.
(continued)
Page 22 of 32
5
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(5) Research and Development Expense
Research and development expense is included in cost of sales and has
not exceeded 3.3% of cost of sales in 1994, 1993 and 1992.
(6) Income Taxes
During 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("FAS 109"). FAS 109 requires a change from the deferred method of
accounting for income taxes of Accounting Principles Board Opinion 11 to
the asset and liability method of accounting for income taxes. Under the
asset and liability method of FAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. The change in these deferred
tax assets or liabilities, including the effect of a change in tax rates,
if any, from the beginning to the end of the period generally is recognized
as deferred tax expense or benefit.
Effective January 1, 1993, the Company adopted FAS 109 and has
reported the cumulative effect of that change in the method of accounting
for income taxes in the consolidated statement of earnings for the year
ended December 31, 1993. Prior year financial statements have not been
restated. However, amounts recorded for certain prior business
combinations have been adjusted from their net of tax amounts to their pre-
tax amounts. Related deferred taxes have been recognized. The effect of
these adjustments on earnings before taxes is not material.
Income tax expense was as follows (in thousands):
1994 1993 1992
- -----------------------------------------------------------------------
Current:
Federal $2,837 $1,394 $1,666
State and local 898 630 487
Foreign 1,390 277 21
------ ------ ------
5,125 2,301 2,174
Deferred (benefit) (680) (492) (673)
------ ------ ------
$4,445 $1,809 $1,501
====== ====== ======
For the year ended December 31, 1994, approximately $25,000 was
credited to Additional Paid-In Capital to record the tax benefit of
dividends paid on restricted stock. Additional Paid-In Capital was also
credited for approximately $18,000 for the tax effect of the change in
value from the award date to the release date of restricted stock which was
released during the period.
(continued)
Page 23 of 32
6
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(6) Income Taxes, continued
A reconciliation of the statutory Federal income tax rate with the
effective income tax rate follows:
1994 1993 1992
- -----------------------------------------------------------------------
Statutory Federal income tax rate 34% 34% 34%
Increase(decrease) resulting from:
Tax exempt earnings of
subsidiaries in Puerto Rico (5) (14) (9)
State and local income taxes, net
of federal benefit 6 10 9
Non-deductable expenses 1 2 --
Foreign (1) 1 (1)
Other, net 4 2 2
Effective tax rate 39% 35% 35%
=== === ===
Deferred tax assets and liabilities were as follows (in thousands):
1994 1993
- -----------------------------------------------------------------------
Assets:
Plant and equipment, principally due to
differences in depreciation $ -- $ 34
Inventories, principally due to additional
costs valued for tax purposes 500 229
Vacation compensation 162 141
Pension expense 1,158 771
Stock awards 637 556
Accrued liabilities 549 327
Other 131 84
------ ------
Total deferred tax assets $3,137 $2,142
====== ======
Liabilities:
Plant and equipment, principally due to
differences in depreciation $ 194 $ --
Local tax on Puerto Rico-sourced income 74 120
Other 460 417
------ ------
Total deferred tax liabilities $ 728 $ 537
------ ------
Net deferred tax asset $2,409 $1,605
====== ======
No valuation allowance for deferred tax assets was deemed necessary at
December 31, 1994 or 1993. Based on the Company's history of taxable income
and its projection of future earnings, management believes that it is more
likely than not that sufficient taxable income will be generated in the
foreseeable future to realize the deferred tax assets.
(7) Lease Commitments
The Company conducts a portion of its operations from leased premises
and also leases certain equipment under operating leases.
(continued)
Page 24 of 32
7
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(7) Lease Commitments, continued
Total rental expense for the years ended December 31, 1994, 1993 and
1992 was $1,483,000, $1,183,000 and $1,291,000, respectively. The
aggregate minimum rental commitments under non-cancellable leases in effect
at December 31, 1994 are as follows (in thousands):
Year ending
December 31 Total
------------- --------
1995 $1,226
1996 1,140
1997 1,051
1998 1,011
1999 964
Thereafter 2,352
------
$7,744
======
(8) Shareholders' Equity
Changes were as follows (in thousands):
Additional
Common paid-in Treasury Unearned
stock capital stock compensation
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 $ 373 3,472 4,720 682
------ ----- ----- ---
Stock award of 39,180 shares, net of forfeitures -- 312 (62) 374
Compensation under Restricted Stock Plan -- -- -- (424)
Balance at December 31, 1992 $ 373 3,784 4,658 632
------ ----- ----- ---
Stock award of 18,630 shares, net of forfeitures -- 129 (30) 159
Compensation under Restricted Stock Plan -- -- -- (306)
Net tax benefit of dividends paid on restricted
stock and the difference in value between
grant date and date of vesting -- 13 -- --
Balance at December 31, 1993 $ 373 3,926 4,628 485
------ ----- ----- ---
Stock award of 34,985 shares, net of forfeitures -- 360 (55) 414
Compensation under Restricted Stock Plan -- -- -- (339)
Net tax benefit of dividends paid on restricted
stock and the difference in value between
grant date and date of vesting -- 43 -- --
200% stock dividend recorded on September 18,
1994. 745 -- -- --
------ ----- ----- ---
Balance at December 31, 1994 $1,118 4,329 4,573 560
====== ===== ====== ===
The cumulative translation adjustment was $480,000, $885,000 and $824,000
at December 31, 1994, 1993 and 1992, respectively.
(continued)
Page 25 of 32
8
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(8) Shareholders' Equity, continued
On August 3, 1994, the Company's Board of Directors approved a three-
for-one split of the Company's common stock in the form of a 200% common
stock dividend for shareholders of record as of August 18, 1994. A total
of 5,962,640 shares were issued in connection with the split. The stated
par value of each share was not changed from $.125. A total of $745,000
was reclassified from the Company's retained earnings account to the
Company's common stock account. All share and per share amounts have been
restated to retroactively reflect the stock split.
(9) Employee Benefit Plans
The Company and its subsidiaries maintain defined benefit pension
plans and make contributions to multi-employer plans covering certain union
employees. Certain non-U.S. subsidiaries have varying types of retirement
plans providing benefits for substantially all of their employees.
Pension expense was as follows (in thousands):
1994 1993 1992
- -----------------------------------------------------------------------------
Principal defined benefit plans $1,310 $ 932 $ 811
Contributions to multi-employer plans 201 170 180
Other non-U.S. plans 160 -- --
------ ------ ------
$1,671 $1,102 $ 991
====== ====== ======
The expense for the principal defined benefit pension plans include
the following components (in thousands):
1994 1993 1992
- ------------------------------------------------------------------------------
Service cost - benefits earned during the period $1,286 $ 963 $ 903
Interest cost on projected benefit obligation 1,206 991 888
Actual return on plan assets (124) (1,585) (586)
Net amortization and deferral (1,058) 563 (394)
------- ------- ------
Net periodic pension cost $1,310 $ 932 $ 811
======= ====== ======
(continued)
Page 26 of 32
9
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(9) Employee Benefit Plan, continued
The financial status of the principal defined benefit plans at December
31, was as follows (in thousands):
1994 1993
- ------------------------------------------------------------------------------
Actuarial present value of obligations:
Accumulated benefit obligation (including vested
benefits of $10,863,000 in 1994 and
$7,891,000 in 1993) $12,401 $ 8,100
------- -------
Projected benefit obligation for services to date 18,499 12,808
Plan assets at fair value 15,446 13,144
------- ------
Plan assets in excess of (less than) projected
benefit obligation (3,053) 336
Unrecognized net (gain) from past experience different
from that assumed. (1,206) (3,368)
Prior service costs not yet recognized 612 664
Unrecognized net obligation at January 1, 1987 being
recognized over 18 years 35 38
-------- --------
Accrued pension costs at December 31 $(3,612) $(2,330)
======== ========
Benefits are based on years of service and average final compensation.
For U.S. plans, the Company funds, annually, at least the minimum amount
required by the Employee Retirement Income Security Act of 1974. Plan assets
consist principally of short-term investments and listed bonds and stocks.
Assumptions used to develop data for 1994 and 1993 were as follows:
1994 1993
- ----------------------------------------------------------------------------
Discount rates 7.3-7.5% 9.0%
Annual compensation increases 4.8-7.0% 7.0%
Expected long-term rates of return on plan assets 7.5-9.0% 9.0%
The Company provides certain post-retirement benefits (at least
temporarily) to a small number of retirees at one of its recently acquired
businesses. These amounts have been accrued and have not had a material
impact on the Company's financial statements.
The Company maintains a defined contribution 401(k) plan covering
substantially all U.S. employees not affected by certain collective
bargaining agreements. The Company contributes a matching amount equal to
$.50 for each $1.00 of the participant's contribution not in excess of 3%
of the participant's annual wages. The contribution expense under this
plan was $165,000, $177,000 and $155,000 in 1994, 1993, and 1992,
respectively.
(continued)
Page 27 of 32
10
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(10) Quarterly Financial Data (Unaudited)
Quarterly results of operations (unaudited) for 1994 and 1993 are
summarized as follows (in thousands, except per share data):
Quarter ended
Mar. 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------
1994:
Net sales $34,960 $37,816 $36,591 $37,077
Gross profit 9,443 10,324 9,985 10,083
Net earnings 1,370 1,742 1,884 1,948
Net Earnings per Share .23 .29 .31 .32
1993:
Net sales $26,116 $25,295 $25,306 $23,740
Gross profit 6,061 6,478 6,265 5,948
Net earnings:
Before cumulative effect -
change in accounting for
income taxes 647 793 903 1,013
Cumulative effect -
change in accounting for
income taxes 261 -- -- --
------ ------ ------ ------
Total 908 793 903 1,013
Net earnings per share:
Before cumulative effect -
change in accounting for
income taxes .11 .13 .15 .17
Cumulative effect - change in
accounting for income taxes .04 -- -- --
------ ------ ------ ------
Total .15 .13 .15 .17
(11) Incentive Compensation Plan
The Company has an Incentive Compensation Plan for key employees of
the Company and its subsidiaries. The Plan grants the recipient the right
of ownership of Technitrol, Inc. common stock, conditional on the
attainment of defined performance goals and/or continued employment with
the Company.
(continued)
Page 28 of 32
11
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(11) Incentive Compensation Plan, continued
A summary of the shares under the Incentive Compensation Plan is as
follows (with relevant share amounts restated to reflect the 200% stock
dividend):
Awarded,
Available to Not Yet
be Granted Released
- ---------------------------------------------------------------------------
Shares authorized 600,000
Awarded during years prior to 1994 (342,525) 342,525
Shares released to recipients prior to 1994 (157,680)
Balance at December 31, 1993 257,475 184,845
Awarded during 1994, net (34,985) 34,985
Shares released to recipients during 1994 (40,130)
Balance at December 31, 1994 222,490 179,700
Shares are held by the Company until the defined performance goals
and/or continued employment requirement have been attained.
During the years ended December 31, 1994, 1993 and 1992, the Company
issued to employees, net of cancellations, Incentive Compensation Shares
having an approximate fair value at date of issue of $414,000, $159,000 and
$374,000, respectively.
Amounts charged to expense as a result of the incentive compensation
plan and related expenses were $994,000 in 1994, $658,000 in 1993 and
$653,000 in 1992.
(12) Supplementary Information
Charged directly to costs and expenses (in thousands):
1994 1993 1992
- --------------------------------------------------------------------------
Depreciation $5,016 $4,901 $4,890
Amortization of intangible assets 255 90 78
Advertising 1,159 1,117 1,009
Repairs and maintenance 1,936 1,162 1,079
Bad debt expense 114 76 80
Cash payments made (in thousands):
Income taxes $3,663 $1,320 $1,780
Interest 1,058 389 724
(continued)
Page 29 of 32
12
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(12) Supplementary Information, continued
Supplemental Disclosure of Non-cash Transactions:
On February 12, 1992, the Company purchased all of the capital stock
of AMI-DDC for $728,000. In conjunction with the acquisition, liabilities
were assumed as follows (in thousands):
Fair value of assets acquired $7,730
Cash paid for the capital stock (728)
Liabilities assumed $7,002
(13) Segment Information
Information about the Company's reportable business segments and
foreign operations are contained on Pages 2, 3 and 4 of this Form 10-K and
is an integral part of the Company's financial statements.
Page 30 of 32
EXHIBIT INDEX
DOCUMENT
3. (a) Articles of Incorporation Incorporated by reference to Form
10-Q for quarter ended
September 30, 1985.
(b) By-laws Incorporated by reference to Form
10-Q for the quarter ended
September 30, 1990.
4. Instruments defining rights of Incorporated by reference to Form
security holders 10-K for the year ended
December 31, 1982.
21. Subsidiaries of Registrant Page 31
23. Consent of Certified
Public Accountants Page 32
27. Financial Data Schedule Electronic Filing Only