ITEM 2 PROPERTIES - ------------------ The following properties were owned or leased by the Company at December 31, 1995. The Trevose and Philadelphia locations are used in more than one business segment. All other properties are used exclusively in one segment, as identified.
The Company believes its facilities to be adequate for its present needs.
Page 6 of 38
ITEM 3
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
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE - -------------------------------------------------------------------
PART II
ITEM 5
ITEM 5 MARKET PRICE OF REGISTRANT'S COMMON STOCK AND RELATED SECURITY MATTERS - ------------------------------------------------------------------------------ Technitrol Inc.'s common stock is traded on the American Stock Exchange. The following table reflects the high and low sales prices on such Exchange and the dividends paid to shareholders in each quarterly period during Technitrol's last two fiscal years.
QUARTER 1ST 2ND 3RD 4TH ------- ------- ------- ------- 1995 HIGH $15.625 $15.000 $18.000 $23.750
1995 LOW $13.375 $13.250 $14.000 $15.875
1995 DIVIDENDS PAID $ 0.095 $ 0.095 $ 0.100 $ 0.100
1994 HIGH $11.792 $12.917 $14.500 $16.000
1994 LOW $ 9.875 $10.875 $11.583 $12.000
1994 DIVIDENDS PAID $ .093 $ .093 $ .093 $ .095
The approximate number of holders of record of the common stock, Technitrol Inc.'s only class of stock outstanding, as of January 12, 1996 was:
TITLE OF CLASS NUMBER OF SHAREHOLDERS -------------- ---------------------- Common Stock 745 par value $.125 per share
Page 7 of 38
Page 8 of 38
ITEM 7
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----------------------------------------------------------------
Liquidity and Capital Resources - -------------------------------
Cash and cash equivalents totalled $13.9 million at December 31, 1995, compared to $8.7 million a year earlier. Working capital was $43.2 million, compared to $32.7 million at December 31, 1994. The financial performance during the fourth quarter of 1995, which included the operations of Pulse Engineering, Inc. ("Pulse"), contributed to the year-to-year increase in working capital. Pulse was acquired at the end of September 1995 and the large increases in consolidated accounts receivable and inventory were due primarily to the Pulse balances acquired. Pulse had a favorable working capital ratio prior to the acquisition and it remained strong subsequent to the acquisition. Additional information regarding the Pulse acquisition is included in Note 2 of Notes to the Consolidated Financial Statements.
Cash provided by 1995 operating activities was $18.2 million. The positive cash flow was composed mainly of net earnings of $9.3 million, depreciation and amortization of $6.2 million, and increases in accounts payable and accrued expenses of $1.2 million and $1.7 million, respectively. Depreciation and amortization amounts included three months of depreciation on the Pulse assets and three months of amortization of the goodwill resulting from the Pulse acquisition. Significant decreases in prepaid expenses and other assets (excluding amounts acquired from Pulse) also provided cash during the year. Cash was provided by a decrease in accounts receivable of $1.3 million while cash of $2.8 million was consumed by an increase in inventories. The increase in inventories includes amounts produced by the Electronic Components Segment, which includes Pulse, in anticipation of the Chinese New Year holiday in February 1996. The Company's production operations in the Peoples Republic of China (the "PRC") and in Taiwan are typically closed for one to two weeks for this holiday and inventory is built in anticipation of the lost production time.
Investing activities consumed $11.6 million during 1995. Capital expenditures constituted $5.9 million, excluding acquisitions. Separately, cash of $5.9 million was paid for the capital stock of Pulse stockholders, net of cash acquired. The cash portion of the purchase price, including the cash paid to the former stockholders of Pulse and related acquisition costs, was approximately $27.6 million. Cash acquired from Pulse and used to partially fund the acquisition was approximately $21.7 million. Additional financing for the acquisition was provided by bank borrowings as described below. Projected 1996 capital expenditures are expected to be financed by internally generated funds.
Cash used in financing activities was a net $1.3 million. Cash consumed by financing activities was due to combined debt reduction of $7.8 million and $2.5 million of dividend payments. It is expected that dividends will continue to be paid on a quarterly basis during 1996. Proceeds from long-term borrowings were $9.0 million. The proceeds included $5.0 million which was used to finance the May 1995 purchase of warrants for Pulse common stock. In connection with the September 1995 closing of the Pulse acquisition, an additional $4.0 million was borrowed under a bank syndicated credit facility which authorized Technitrol to borrow up to $50 million on an unsecured basis. Technitrol used approximately $18.0 million of this credit facility to refinance existing indebtedness (including the $5.0 million which had been borrowed to fund the Pulse warrant purchase in May 1995) and, separately, approximately $4.0 million of the credit facility to partially fund the acquisition costs and cash payments to former shareholders of Pulse. On December 29, 1995, the credit facility was amended in conjunction with a partial repayment and the total facility was reduced to $45.0 million. Further payments in advance of the due date were made in February and March of 1996 in amounts of $6.0 million and $1.0 million, respectively. Approximately $3.6 million (before payment of related transaction expenses and costs) was received at the end of February 1996 from the sale of the Products Division as explained in Note 14 of Notes to the Consolidated Financial Statements. A portion of these funds were applied in March, as aforementioined, to pay off all amounts outstanding under the line of credit. The balance of the funds received will be used for general working capital purposes.
Page 9 of 38
The Company's foreign sales are conducted primarily through its foreign subsidiaries, principally in the Far East and Europe. In the Far East, the Company's sales are denominated primarily in U.S. dollars. In Europe, sales are denominated in local currencies (consisting mainly of English pounds and French francs) and in U.S. dollars. Since a very significant portion of the Company's foreign sales are denominated in U.S. dollars, the Company does not believe that its potential exposure to currency fluctuations is material to its business. During 1994, the Company did not purchase any currency exchange forward contracts or similar instruments generally utilized to reduce the risk of currency fluctuations. During 1995, a limited number of short-term forward contracts were purchased by a Pulse subsidiary in Europe. All such contracts were closed prior to the end of the year. These contracts are purchased in order to guarantee a predetermined currency exchange rate at the time the contract is purchased by transferring the risk or benefit of currency fluctuations to a third party.
Slightly more than one-quarter of the Company's identifiable assets are located in the Far East and significant sales and operating profits are generated in that region. (See the geographic segment data included in Note 13 of Notes to the Consolidated Financial Statements.) The Company's operations in the region include manufacturing plants in the PRC, Taiwan and the Philippines. If unfavorable political, economic or other events occur in that region, they could have a material adverse effect on the Company's liquidity and capital resources. Management monitors events in the region and takes steps to reduce the risk of uncertainty when possible.
Balance Sheet Composition at December 31:
RESULTS OF OPERATIONS - ---------------------
1995 and 1994 - -------------
Revenues - -------- Consolidated sales for the Company were $176.4 million in 1995, an increase of 20.5% from 1994. The increase was largely due to the sales of Pulse, acquired at the end of September 1995. The Pulse sales included in the consolidated results of the Company were approximately $25.4 million. The sales increases of the Electronic Components Segment (which includes Pulse) and the Test & Measurement Products Segment exceeded a sales decrease experienced by the Metallurgical Products Segment. The Company's backlog at December 31, 1995 was $55.9 million, including $28.2 million for Pulse.
Page 10 of 38
The sales of the Electronic Components Segment increased from $41.2 million in 1994 to $68.4 million in 1995. The Fil-Mag Group and Pulse, along with the Components Division of the Company, have been combined into one world-wide operation serving the needs of the local area network (LAN) and telecommunications marketplaces. In addition to the Pulse sales noted above, sales of the Fil-Mag Group increased during the year. The lower sales level of the Components Division, which was caused by a decline in domestic demand for that Division's products, was more than offset by increased demand for products manufactured by Fil-Mag and Pulse. The strong demand of these markets for products produced by Pulse and the Fil-Mag Group continued into the beginning of 1996, as evidenced by solid backlog and order levels at the end of 1995. Operating profits for the Segment in 1995 were $10.7 million compared to $5.0 million in 1994. The sales and operating profits of the Segment included three months of Pulse activity.
The Metallurgical Products Segment experienced a number of challenges during 1995 and the sales and operating profits of this Segment were lower than the 1994 levels. Sales in 1995 were $75.3 million, down from $76.5 million in 1994. A sales decrease at Advanced Metallurgy, Inc. ("AMI") exceeded a sales increase at Chace Precision Metals, Inc. ("Chace"). The sales of AMI and, to a lesser extent, Chace are affected by general trends in the domestic economy, particularly those in housing, automotive, appliances and capital equipment markets. During the second half of 1995, there was a softening in demand for the products of this Segment. In addition, the Segment's operating profits were negatively impacted by increased price competition and rapidly escalating raw material costs, particularly in the nonprecious metals markets. Management has focused significant attention on attaining increased manufacturing efficiencies and has implemented a partial pass-through of the raw material price changes by way of both a price increase and a metals factor. Operating profits of the Segment were $1.8 million in 1995, down from $4.8 million in 1994.
In the Test & Measurement Products Segment, sales increases at John Chatillon & Sons, Inc. ("Chatillon") and Lloyd Instruments, Inc. ("Lloyd") exceeded a sales decrease at the Products Division. That sales decrease was primarily caused by weak domestic demand for the currency counters and dispensers manufactured by the Products Division. The February 1996 sale of the Products Division evidenced management's intention to focus on the test and measurement product lines within this Segment. Relative to the 1995 results, Lloyd in particular contributed to the higher sales and operating profits of the Segment. The 1995 Lloyd sales included a full year of the sales of Erichsen, a German subsidiary acquired late in 1994. Chatillon's sales benefited from recent product development efforts. Sales for the Segment increased from $28.7 million in 1994 to $32.8 million in 1995 while operating profits increased from $2.7 million to $2.9 million.
Cost of Sales - ------------- In 1995, the Company's gross margin increased by 6%, from 29.6% of sales in 1994 to 31.5% in 1995. This margin increase was driven primarily by the strong product demand and increased manufacturing efficiencies within the Electronic Components Segment. These gains offset the lower gross profits of the Metallurgical Products Segment which experienced significant decreases in gross profits versus the prior year, with the majority of the gross profit decline occurring at AMI. The softer demand, increased price competition and rising metal costs noted above caused this decline.
Operating Expenses - ------------------ The Company's selling, general and administrative expenses increased to $40.2 million in 1995 from $30.8 million in 1994. This represented 22.8% of sales in 1995 and 21.0% of sales in 1994. The increase was primarily caused by the addition of Pulse for the fourth quarter.
Interest - -------- Interest expense increased from $1.1 million in 1994 to $1.4 million in 1995 reflecting the incremental borrowing related to the Pulse acquisition.
Page 11 of 38 Income Taxes - ------------ The Company's effective income tax rate declined to 36% in 1995 from 39% in 1994. During 1995, proportionately higher taxable income was earned by the Company's foreign operations, which generally have lower tax rates than the domestic operations.
During 1995, the Financial Accounting Standards Board issued Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation ("FAS123"). Under the new standard, companies have the option of including certain stock-based compensation in the company's statement of earnings or, alternately, providing disclosure of the related compensation amounts in a note to the financial statements. The new disclosures apply to financial statements for years beginning after December 15, 1995. The Company intends to adopt the disclosure alternative and does not expect FAS123 to have a material impact on its pro forma results of operations. During 1995, the Company did not grant incentive stock options to employees. However, in connection with the acquisition of Pulse on September 29, 1995 (see Note 2 to Consolidated Financial Statements), outstanding options to purchase Pulse common stock were assumed by the Company and converted into options to purchase Technitrol common stock. The difference between the exercise price and the market value of Technitrol stock at the date of acquisition was capitalized as part of the purchase price. No additional options are expected to be issued under the assumed plans. See Note 11 to the Consolidated Financial Statements for additional information regarding stock-based compensation provided by the Company.
The Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, is effective for fiscal years beginning after December 15, 1995. The adoption of this standard is not expected to have a material impact on the Company.
1994 and 1993 - -------------
Revenues - -------- In 1994, consolidated sales were $146.4 million compared to $100.5 million in 1993. The 45.7% increase was due to the $30.8 million sales of the Fil-Mag Group, acquired in January 1994, and a combined sales increase of $15.1 million realized by the other businesses of the Company. All three of the Company's segments experienced increased sales in 1994 from 1993.
The December 31 backlog was $28.7 million in 1994 and $14.9 million in 1993. Contributing to the increase was the Fil-Mag Group's backlog.
The increase in sales of the Electronic Components Segment to $41.2 million included the sales of the Fil-Mag Group as noted above. Operating profit of the Electronics Components Segment increased to $5.0 million in 1994, compared to $1.7 million in the prior year. The increase reflected the fifty weeks of profits of the Fil-Mag Group since its acquisition in January 1994. As a percentage of sales, this segment's annual operating profits equaled 12.2% which was the highest of the Company's three product segments. Year end backlog and order volumes indicated a softening in the segment's domestic markets, while offshore demand remained relatively strong.
The Metallurgical Products Segment produced increased sales, operating profit and operating profit as a function of sales in 1994 as compared to 1993. AMI experienced its largest sales and profit improvements to the product line which was acquired from Engelhard Corporation in 1991. Housing starts continued to have an eventual impact on demand for various AMI products. Management monitored the indirect effect that interest rate increases had on AMI backlog levels which were stable entering the first quarter of 1995. Separately, Chace sales and operating profits also grew year-to-year. On-going efforts aimed at cost containment and quality improvements contributed to the growth in sales volume and profits. Chace's proven ability to compete in a demanding industrial market was reflected by a strong backlog position as it began 1995.
Page 12 of 38
Two of the three operating units within the Test & Measurement Products Segment experienced an increase in sales and operating profits. Chatillon sales volume and profitability improved in its primary product families, as the improved economic climate contributed to more favorable market conditions. Lloyd's year-to-year sales increase reflected incremental unit sales and the absence of the unfavorable currency translation which negatively impacted 1993 results. Lower sales and operating profit occurred at the Company's Products Division. Domestic demand for currency counters and dispensers decreased during 1994, which was also the first full year subsequent to the Division withdrawing as a provider of engineering services on a prime contract basis to an agency of the U.S. Government.
Cost of Sales - ------------- In 1994, the Company's overall gross margin increased to 29.6% of sales from 26.9% in 1993. Improvements were made in each of the Company's three business segments. The addition of the Fil-Mag Group within the Electronic Components Segment, cost containment and quality improvements within the Metallurgical Products Segment and the higher sales of Chatillon and Lloyd included in the Test & Measurement Products Segment all contributed to a higher gross margin in 1994.
Operating Expense - ----------------- The Company's selling, general and administrative expenses increased to $30.8 million in 1994 from $21.6 million in 1993. The key reason for the increase was the addition of the Fil-Mag Group.
Interest - -------- Interest expense grew to $1.1 million, caused by the $10 million increase in outstanding debt to fund the Fil-Mag Group acquisition and rising interest rates during the year.
Income Taxes - ------------ 1994 income tax expenses increased as a function of pre-tax earnings. The 1994 effective income tax rate rose to 39% from 35% in 1993 as a result of proportionately higher taxable income being earned by the Company's domestic operations. Effective income tax rates of the domestic operations generally exceed those of the Company's offshore operations.
ITEM 8
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
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - NONE - -------------------------------------------------------------------
Page 13 of 38
PART III
CROSS REFERENCE INDEX
FORM 10-K ITEM NUMBER AND CAPTION INCORPORATED MATERIAL ------------------------------ ------------------------------ ITEM 10
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, REGISTRANT'S DEFINITIVE PROXY PROMOTERS & CONTROL PERSONS STATEMENT ITEM 11
ITEM 11 EXECUTIVE COMPENSATION REGISTRANT'S DEFINITIVE PROXY STATEMENT ITEM 12
ITEM 12 SECURITY OWNERSHIP OF CERTAIN REGISTRANT'S DEFINITIVE PROXY BENEFICIAL OWNERS AND STATEMENT MANAGEMENT ITEM 13
ITEM 13 CERTAIN RELATIONSHIPS AND REGISTRANT'S DEFINITIVE PROXY RELATED TRANSACTIONS STATEMENT
PART IV
ITEM 14
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------ (a) Documents filed as part of this report
Financial Statements --------------------
Independent Auditors' Report Consolidated Balance Sheets - December 31, 1995 and 1994 Consolidated Statements of Earnings and Retained Earnings - Years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows - Years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements
Financial Statement Schedules -----------------------------
Schedule II, Valuation and Qualifying Accounts
(b) The Company filed a report on Form 8-K on October 13, 1995 regarding the acquisition of Pulse Engineering on September 29, 1995.
(c) Exhibits
(11) Computation of Primary and Fully Diluted Earnings Per Share (21) Subsidiaries of the Registrant (23) Consent of Certified Public Accountants (27) Financial Data Schedule (electronic filing only)
Page 14 of 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TECHNITROL, INC.
By /s/Thomas J. Flakoll ------------------------------------- Thomas J. Flakoll Chief Executive Officer and Director
Date March 20, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /s/Stanley E. Basara By /s/Drew A. Moyer ------------------------------- ------------------------------ Stanley E. Basara Drew A. Moyer Director Corporate Controller (Principal Accounting Officer)
Date March 20, 1996 Date March 20, 1996
By /s/John E. Burrows, Jr. By /s/James M. Papada, III ------------------------------- ------------------------------ John E. Burrows, Jr. James M. Papada, III Director Chairman of the Board of Directors
Date March 20, 1996 Date March 20, 1996
By /s/J. Barton Harrison By /s/James J. Rafferty, Jr. ------------------------------- ------------------------------ J. Barton Harrison James J. Rafferty, Jr. Director Vice President and Director
Date March 20, 1996 Date March 20, 1996
By /s/Roy E. Hock By /s/Albert Thorp, III ------------------------------- ------------------------------ Roy E. Hock Albert Thorp, III Director Vice President - Finance and Treasurer (Principal Financial Officer)
Date March 20, 1996 Date March 20, 1996
By /s/Graham Humes ------------------------------- Graham Humes Director
Date March 20, 1996
By /s/Edward M. Mazze ------------------------------ Edward M. Mazze Director
Date March 20, 1996
Page 15 of 38
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements -------------------- Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Earnings and Retained Earnings - Years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Financial Statement Schedules ----------------------------- Schedule II - Valuation and Qualifying Accounts
Page 16 of 38
Independent Auditors' Report
The Board of Directors and Shareholders Technitrol, Inc.:
We have audited the consolidated financial statements of Technitrol, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Technitrol, Inc. and subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 6 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania March 1, 1996
Page 17 of 38
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
In thousands of dollars, except for share data
Assets 1995 1994 ------ -------- ------- Current Assets: Cash and cash equivalents $ 13,894 $ 8,716 Receivables: Trade 33,431 22,614 Other 308 139 Inventories 32,962 21,714 Prepaid expenses and other current assets 2,019 851 -------- ------- Total current assets 82,614 54,034
Property, plant and equipment 81,063 55,180 Less accumulated depreciation 35,935 30,809 -------- ------- Net property, plant and equipment 45,128 24,371 Deferred income taxes 4,132 2,409 Excess of cost over net assets acquired 10,957 2,320 Other assets 2,109 1,621 -------- ------- $144,940 $84,755 ======== =======
Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Current installments of long-term debt $ 2,023 $ 22 Short-term debt -- 756 Accounts payable 8,359 5,841 Accrued expenses 28,990 14,739 -------- ------- Total current liabilities 39,372 21,358
Long-term liabilities: Long-term debt, excluding current installments 15,102 15,124 Accrued pension expense 2,237 2,516 Other long-term liabilities 3,468 --
Commitments and contingencies (Note 7)
Shareholders' equity: Common stock, $.125 par. 30,000,000 shares authorized and 10,733,832 issued in 1995; 10,000,000 shares authorized and 8,943,960 issued in 1994. 1,342 1,118 Additional paid-in capital 36,907 4,329 Retained earnings 52,517 45,923 -------- ------- 90,766 51,370
Less: Cost of treasury stock (2,897,963 shares in 1995, and 2,922,508 in 1994) (4,535) (4,573) Unearned compensation under stock award plan (697) (560) Cumulative translation adjustment (773) (480) -------- ------- Total shareholders' equity 84,761 45,757 -------- ------- $144,940 $84,755 ======== =======
See accompanying Notes to Consolidated Financial Statements.
Page 18 of 38
TECHNITROL, INC. AND SUBSIDIARIES Consolidated Statements of Earnings and Retained Earnings Years ended December 31, 1995, 1994 and 1993 In thousands, except per share data
1995 1994 1993 -------- -------- -------- Net sales $176,419 $146,444 $100,457 Cost of sales 120,765 103,096 73,480 -------- -------- -------- Gross profit 55,654 43,348 26,977
Selling, general and administrative expenses 40,165 30,787 21,602 -------- -------- -------- Operating profit 15,489 12,561 5,375 Other income (expense): Interest income 374 140 108 Interest expense (1,383) (1,130) (389) Other, net 61 (182) 71 -------- -------- -------- (948) (1,172) (210) -------- -------- -------- Earnings before income taxes 14,541 11,389 5,165 Income taxes 5,201 4,445 1,809 -------- -------- --------
Net earnings before cumulative effect of a change in accounting for income taxes $ 9,340 $ 6,944 $ 3,356
Cumulative effect on prior years (to January 1, 1993) of a change in accounting for income taxes (Note 6) -- -- 261 -------- -------- -------- Net earnings $ 9,340 $ 6,944 $ 3,617 ======== ======== ======== Earnings per share: Before cumulative effect of a change in accounting for income taxes $ 1.43 $ 1.15 $ .56 Cumulative effect of a change in accounting for income taxes $ -- $ -- $ .04 -------- -------- -------- Total earnings per share $ 1.43 $ 1.15 $ .60 ======== ======== ======== Average outstanding common and equivalent shares 6,538 6,015 5,989 ======== ======== ======== Retained earnings: Balance at beginning of year $ 45,923 $ 41,993 $ 40,614 Net earnings for the year 9,340 6,944 3,617 -------- -------- -------- $ 55,263 $ 48,937 $ 44,231 200% Common stock dividend -- 745 -- Cash dividends declared: ($.395 per share in 1995, $.376 in 1994 and $.373 in 1993) 2,746 2,269 2,238 -------- -------- -------- Balance at end of year $ 52,517 $ 45,923 $ 41,993 ======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
Page 19 of 38
TECHNITROL, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1995, 1994, and 1993 In thousands of dollars
Cash flows from operating activities: 1995 1994 1993 ------- ------- ------- Net earnings $ 9,340 $ 6,944 $ 3,617 Cumulative effect of a change in accounting for income taxes -- -- (261) Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 6,245 5,271 4,991 Loss (gain) on disposal of equipment (40) 88 (60) Changes in assets and liabilities net of effect of acquisitions: Increase in deferred tax benefits (1,711) (1,019) (492) Increase in accounts payable 1,216 1,082 689 Increase in accrued expenses 1,704 4,967 1,779 (Increase)decrease in accounts receivable 1,346 (4,626) 142 (Increase)decrease in inventories (2,769) (2,482) 1,031 Other, net 2,848 (606) 112 ------- ------- -------
Net cash provided by operating activities 18,179 9,619 11,548 ------- ------- -------
Cash flows from investing activities: Acquisition of capital stock of the Fil-Mag Group, net of cash acquired -- (8,805) -- Acquisition of Pulse, net of cash acquired (5,872) -- -- Capital expenditures, exclusive of acquisitions (5,864) (4,429) (2,655) Proceeds from sale of property, plant and equipment 158 282 71 ------- ------- ------- Net cash used in investing activities (11,578) (12,952) (2,584) ------- ------- -------
Cash flows from financing activities: Repayment of Fil-Mag Group funded indebtedness -- (1,014) -- Principal payments on long-term debt (7,022) (21) (8,421) Net repayments of short term debt (756) (2,504) -- Proceeds of long-term borrowings 9,000 10,000 6,700 Dividends paid (2,534) (2,255) (2,237) ------- ------- ------- Net cash provided by (used in) financing activities (1,312) 4,206 (3,958) ------- ------- ------- Net effect of exchange rate changes on cash (111) 122 (33)
Net increase in cash and cash equivalents 5,178 995 4,973
Cash and cash equivalents at beginning of year 8,716 7,721 2,748 ------- ------- -------
Cash and cash equivalents at end of year $13,894 $ 8,716 $ 7,721 ======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
Page 20 of 38
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies ------------------------------------------
Principles of Consolidation - --------------------------- The consolidated financial statements include the accounts of Technitrol, Inc. (the "Company") and all of its subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation.
Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include funds invested in a variety of liquid short-term investments with a maturity of three months or less.
Inventories - ----------- Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. In addition to the inventories included in the accompanying balance sheets, the Company has custody of inventories on consignment from suppliers ($11,118,000 at December 31, 1995 and $14,063,000 at December 31, 1994). This inventory consists primarily of silver which is used in the Company's metal contact manufacturing business.
Property, Plant and Equipment - ----------------------------- Property, plant and equipment are stated at cost. Depreciation is based upon the estimated useful life of the assets and has been provided for on both the accelerated and the straight line methods. The estimated useful lives range from 5 to 30 years for buildings and improvements and from 3 to 10 years for machinery and equipment. Expenditures for maintenance and repairs are charged to operations as incurred, and major renewals and betterments are capitalized. Upon sale or retirement, the cost of the asset and related accumulated depreciation are removed from the balance sheet, and any resulting gains or losses are included in earnings.
Excess of Cost over Net Assets - ------------------------------ Excess of cost over net assets acquired (which the Company believes has continuing value) is being amortized on a straight-line basis over 15 years. The recoverability of its carrying value is evaluated on a recurring basis by determining whether the amortization of its remaining balance can be recovered through future operating cash flows of the acquired operation.
Earnings per Share - ------------------ Earnings per share are calculated by dividing earnings by the weighted average number of common shares outstanding during the year, including common share equivalents. Common share equivalents are incremental shares attributed to outstanding options to purchase common stock. Relevant earnings per share amounts have been restated to reflect a 200% stock dividend recorded on September 18, 1994.
Foreign Currency Translation - ---------------------------- Most foreign subsidiaries' functional currency is the U.S. dollar; those entities translate monetary assets and liabilities at year-end exchange rates while nonmonetary items are translated at historical rates. Income and expense accounts are translated at the average rates in effect during the year, except for depreciation and cost of sales which are translated at historical rates. Gains or losses from changes in exchange rates are recognized in earnings in the year of occurrence. The remaining entities use the local currency as the functional currency and translate net assets at year-end rates while income and expense accounts are translated at average exchange rates. Adjustments resulting from these translations are reflected in the shareholders' equity section titled "Cumulative translation adjustment."
Fair Value of Financial Instruments - ----------------------------------- The carrying value of cash and cash equivalents, receivables, other current assets, accounts payable and accrued expenses approximates fair value because of the short maturity of those instruments. The carrying value of long term debt approximates fair value after taking into consideration current rates offered to the Company for similar debt instruments of comparable maturities.
Page 21 of 38
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued ------------------------------------------ Estimates - --------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications - ----------------- Certain amounts in the prior year financial statements have been reclassified to conform with the current year presentation.
(2) Acquisitions ------------ On September 29, 1995, the Company completed the acquisition of Pulse Engineering, Inc. ("Pulse"), pursuant to an Agreement and Plan of Merger dated May 23, 1995. As a result of the merger, Pulse became a wholly-owned subsidiary of the Company. Pulse, headquartered in San Diego, California, and with operations in Hong Kong, the People's Republic of China and Ireland, designs, manufactures and markets electronic components and modules primarily for manufacturers of local area networks and telecommunications systems.
The total purchase price approximated $61.5 million and consisted of cash paid to the former Pulse stockholders, stock issued to the former Pulse stockholders, stock options assumed, and related acquisition costs. The fair value of the assets acquired and liabilities assumed approximated $66.5 million and $14.0 million, respectively. The excess of cost over net assets acquired approximated $9.0 million.
Approximately 1,785,000 shares of Technitrol common stock at a fair market value of $16.375 per share were issued to former holders of Pulse common stock. The cash portion of the purchase price, including cash paid to the former stockholders of Pulse and related acquisition costs, was approximately $27.6 million. In addition, all outstanding options to purchase Pulse common stock were assumed by the Company. At the date of acquisition, approximately 269,000 shares of Technitrol common stock were issuable upon exercise of such options and, except for approximately 33,000 options which were not yet vested, all assumed options were exercisable immediately at prices ranging from $1.73 to $15.61. The options have various expiration dates, the latest of which is in April 2001. The shares issued and the options outstanding were included in the weighted average shares outstanding used for calculating earnings per share for the quarter and the year ended December 31, 1995.
In conjunction with the Pulse acquisition, Technitrol established a credit facility with a group of banks which authorized Technitrol to borrow up to $50 million on an unsecured basis. Technitrol initially used approximately $18 million of this credit facility to refinance existing indebtedness and, separately, approximately $4 million of the credit facility to partially fund the cash portion of the merger consideration. On December 29, 1995, the credit facility was amended in conjunction with a partial repayment and the total facility was reduced to $45 million.
(continued)
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TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Acquisitions, continued ------------ Since the shares issued to the former holders of Pulse common stock and the options assumed in connection with the acquisition were outstanding for the entire fourth quarter (but only for a portion of the entire year), the weighted average shares outstanding were considerably different for the year than for the fourth quarter alone. As a result, the earnings per share for the year will not equal the sum of the four quarterly earnings per share amounts.
The acquisition has been accounted for by the purchase method of accounting. Had Pulse been acquired on January 1, 1994, unaudited consolidated pro forma results of operations would have been (in thousands, except for earnings per share):
Year Ended Year Ended Dec. 31, 1995 Dec. 31, 1994 ------------- ------------- Sales $252,104 $177,913 Net earnings $16,825 $8 Earnings per share $2.10 $0.00
This unaudited information is provided for comparative purposes only. It does not purport to be indicative of the results that actually would have occurred if the acquisition had been consummated on the date indicated or which may be obtained in the future. The pro forma earnings per share amounts include the effect of shares issued and stock options assumed in connection with the merger.
On January 17, 1994, the Company, through its wholly-owned subsidiary, Technitrol International, Inc., a Delaware corporation, acquired from FEE Technology, S.A. all of the issued and outstanding capital stock of FEE Fil-Mag Taiwan Corporation ("FFT"), FEE Fil-Mag Singapore Pte. Corporation ("FFS") and Fil-Mag, Inc. ("FMI"). FFT, FFS and FMI are referred to below as the "Fil-Mag Group". The Fil-Mag Group is a supplier of magnetic components to domestic and international manufacturers of PCs, network interface cards, network controllers and other devices that are connected to data communications networks such as Token Ring and Ethernet. The Fil- Mag Group conducted manufacturing operations in its plants in Taiwan and the Philippines; engineering activities at its San Diego, California location; and sales operations through offices in France, Singapore and San Diego.
The purchase price of the Fil-Mag Group was $9,082,000 (net of expenses). In addition, the Company caused FMI to repay to FEE Technology, S.A. approximately $1 million of indebtedness. FFT was indebted to local banks in the amount of approximately $3.3 million, all of which has been retired since the acquisition. The assets acquired and liabilities assumed approximated $15.5 million and $8.6 million, respectively. The excess of cost over net assets acquired approximated $2.5 million. The purchase price and the $1 million debt repayment were financed by borrowing $10 million under a temporary acquisition line of credit and cash on-hand of approximately $400,000.
(continued)
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TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Acquisitions, continued ------------ Subsequent to the acquisition, eight key employees of the Fil-Mag Group entered into a covenant against competition with the Company in exchange for which the Fil-Mag Group paid them, in the aggregate, $1 million during the twelve months subsequent to the acquisition. The $1 million was financed by cash on-hand and is being amortized on a straight- line basis over the life of the agreement.
The purchase price for Pulse and the purchase price for the Fil-Mag Group were arrived at pursuant to arms-length negotiations, taking into account all pertinent factors including, but not limited to, the nature, monetary and strategic value of the assets being acquired, business prospects of Pulse and each member of the Fil-Mag Group and the synergies of the businesses with the current operations of the Company.
(3) Financial Statement Details --------------------------- The following provides details for certain financial statement captions at December 31, 1995 and 1994:
1995 1994 ------- ------- Inventories Finished goods $12,926 $ 5,471 Work in progress 8,888 8,420 Raw materials and supplies 11,148 7,823 ------- ------- $32,962 $21,714 ======= =======
Property, plant and equipment Land $ 2,152 $ 1,044 Buildings and improvements 23,026 15,074 Machinery and equipment 55,885 39,062 ------- ------- $81,063 $55,180 ======= =======
Accrued expenses Income taxes payable $ 7,082 $ 1,916 Dividends payable 784 572 Accrued compensation 5,980 3,118 Current portion of accrued pension expense 2,321 2,073 Other accrued expenses 12,823 7,060 ------- ------- $28,990 $14,739 ======= =======
(continued)
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TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(4) Long-term Debt -------------- Long-term debt was as follows (in thousands):
1995 1994 ---- ---- Bank Loans - ----------
Fixed rate term loan (6.65%) due December 29, 2000 $10,000 $ --
Variable rate revolving credit facility with $35.0 million maximum draw, due September 29, 1998 $ 7,000 --
Variable-rate (LIBOR plus 0.75%) bank loan facility with $20.0 million maximum draw, due March 1997 (6.97% rate at December 31, 1994) $ -- $15,000 ------- ------- Total bank loans $17,000 $15,000
Mortgage Notes, secured by mortgages on land, buildings, and certain equipment:
4.5% mortgage notes, due in monthly installments until 2000 125 146 ------- ------- Total long-term debt 17,125 15,146
Less current installments 2,023 22 ------- ------- Long-term debt excluding current installments $15,102 $15,124 ======= =======
At the Company's option, interest on the revolving credit facility at December 31, 1995 may be based on the prime rate or on the LIBOR rate plus 0.625%. At December 31, 1995, $5 million was outstanding under the prime rate (then 8.5%) and $2 million was outstanding under the LIBOR rate alternative (then 6.5%).
Principal payments due within the next five years are as follows (in thousands): 1996 $ 2,023 1997 2,024 1998 9,025 1999 2,026 2000 2,027
The Bank Loan facilities are unsecured and contain certain covenants requiring maintenance of minimum net worth and other customary and normal provisions. The Company is in compliance with all such covenants.
(continued) Page 25 of 38
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(5) Research and Development Expense -------------------------------- Research and development expense is included in selling general and administrative expenses and has not exceeded 11% of such expenses in 1995, 1994 and 1993.
(6) Income Taxes ------------ During 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). FAS 109 required a change from the deferred method of accounting for income taxes of Accounting Principles Board Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of FAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The change in these deferred tax assets or liabilities, including the effect of a change in tax rates, if any, from the beginning to the end of the period generally is recognized as deferred tax expense or benefit. Effective January 1, 1993, the Company adopted FAS 109 and has reported the cumulative effect of that change in the method of accounting for income taxes in the consolidated statement of earnings for the year ended December 31, 1993.
Earnings before income taxes were as follows (in thousands):
1995 1994 1993 ------- ------- ------ Domestic $ 1,941 $ 8,406 $4,540 Foreign 12,600 2,983 625 ------- ------- ------ Total $14,541 $11,389 $5,165 ======= ======= ======
Income tax expense was as follows (in thousands):
Current: 1995 1994 1993 ------- ------- ------ Federal $ 2,019 $ 2,837 $1,394 State and local 651 898 630 Foreign 3,629 1,390 277 ------- ------- ------ 6,299 5,125 2,301
Deferred (benefit) (1,098) (680) (492) ------- ------- ------ $ 5,201 $ 4,445 $1,809 ======= ======= ======
For the year ended December 31, 1995, approximately $24,000 was credited to Additional Paid-In Capital to record the tax benefit of dividends paid on restricted stock. Additional Paid-In Capital was also credited for approximately $36,000 for the tax effect of the change in value from the award date to the release date of restricted stock which was released during the period.
(continued)
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TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(6) Income Taxes, continued ------------- A reconciliation of the statutory Federal income tax rate with the effective income tax rate follows:
1995 1994 1993 ---- ---- ---- Statutory Federal income tax rate 34% 34% 34% Increase(decrease) resulting from: Tax exempt earnings of subsidiaries in Puerto Rico (2) (5) (14) State and local income taxes, net of federal benefit 3 6 10 Non-deductable expenses 1 1 2 Foreign (3) (1) 1 Other, net 3 4 2 -- -- -- Effective tax rate 36% 39% 35% == == ==
Deferred tax assets and liabilities included the following (in thousands):
Assets: 1995 1994 Inventories, principally due to additional costs valued for tax purposes $ 596 $ 500 Vacation pay and other compensation 396 162 Pension expense 573 1,158 Stock awards 845 637 Accrued liabilities 2,187 549 Other 97 131 ------ ------ Total deferred tax assets $4,694 $3,137 ====== ======
Liabilities: Plant and equipment, principally due to differences in depreciation $ 109 $ 194 Local tax on Puerto Rico-sourced income 36 74 Other 417 460 ------ ------ Total deferred tax liabilities $ 562 $ 728 ------ ------ Net deferred tax asset $4,132 $2,409 ====== ======
Based on the Company's history of taxable income and its projection of future earnings, management believes that it is more likely than not that sufficient taxable income will be generated in the foreseeable future to realize the deferred tax assets.
(continued)
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TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(7) Commitments and Contingencies -----------------------------
Lease Commitments
The Company conducts a portion of its operations from leased premises and also leases certain equipment under operating leases.
Total rental expense for the years ended December 31, 1995, 1994 and 1993 was $1,795,000, $1,483,000 and $1,183,000, respectively. The aggregate minimum rental commitments under non-cancellable leases in effect at December 31, 1995 are as follows (in thousands):
Year ending December 31 ------------- 1996 $ 3,083 1997 2,808 1998 2,277 1999 2,176 2000 2,014 Thereafter 9,227 ------- $21,585 =======
Environment
The Company is involved in several legal actions relating to waste disposal sites. The Company's involvement in these matters has generally arisen from the alleged disposal by licensed waste haulers of small amounts of waste material many years ago. The Company has established reserves which it believes are adequate for its expected future liability in these matters.
(continued)
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TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(8) Shareholders' Equity -------------------- Changes were as follows (in thousands):
On August 3, 1994, the Company's Board of Directors approved a three- for-one split of the Company's common stock in the form of a 200% common stock dividend for shareholders of record as of August 18, 1994. A total of 5,962,640 shares were issued in connection with the split. The stated par value of each share was not changed from $.125. A total of $745,000 was reclassified from the Company's retained earnings account to the Company's common stock account. All relevant share and per share amounts have been restated to retroactively reflect the stock split. The cumulative translation adjustment was $773,000, $480,000, and $885,000 at December 31, 1995, 1994 and 1993, respectively.
(continued)
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TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(9) Employee Benefit Plans The Company and its subsidiaries maintain defined benefit pension plans and make contributions to multi-employer plans covering certain union employees. Certain non-U.S. subsidiaries have varying types of retirement plans providing benefits for substantially all of their employees.
Pension expense was as follows (in thousands):
1995 1994 1993 ------ ------ ------ Principal defined benefit plans $1,449 $1,310 $ 932 Contributions to multi-employer and other plans 176 201 170 Other non-U.S. plans 34 160 -- ------ ------ ------ $1,659 $1,671 $1,102 ====== ====== ======
The expense for the principal defined benefit pension plans include the following components (in thousands):
1995 1994 1993 ------ ------ ------ Service cost - benefits earned during the period $1,369 $1,286 $ 963 Interest cost on projected benefit obligation 1,319 1,206 991 Actual return on plan assets (3,867) (124) (1,585) Net amortization and deferral 2,628 (1,058) 563 ------ ------ ------ Net periodic pension cost $1,449 $1,310 $ 932 ====== ====== ======
The financial status of the principal defined benefit plans at December 31, was as follows (in thousands):
1995 1994 ------- ------- Actuarial present value of obligations: Accumulated benefit obligation (including vested benefits of $11,990,000 in 1995 and $10,863,000 in 1994) $13,653 $12,401 ------- ------- Projected benefit obligation for services to date 20,404 18,499 Plan assets at fair value 20,261 15,446 ------- ------- Plan assets (less than) projected benefit obligation (143) (3,053)
Unrecognized net (gain) from past experience different from that assumed. (3,661) (1,206)
Prior service costs not yet recognized 559 612
Unrecognized net obligation at January 1, 1987 being recognized over 18 years 31 35 ------- ------- Accrued pension costs at December 31 $(3,214) $(3,612) ======= =======
(continued)
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TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(9) Employee Benefit Plans, continued ----------------------- Benefits are based on years of service and average final compensation. For U.S. plans, the Company funds, annually, at least the minimum amount required by the Employee Retirement Income Security Act of 1974. Plan assets consist principally of short-term investments and listed bonds and stocks. Assumptions used to develop data for 1995 and 1994 were as follows:
Discount rates 7.25 to 7.5% Annual compensation increases 4.75 to 7.0% Expected long-term rates of return on plan assets 7.50 to 9.0%
The Company maintains defined contribution 401(k) plans covering substantially all U.S. employees not affected by certain collective bargaining agreements. Under the primary 401(k) plan, the Company contributes a matching amount equal to $.50 for each $1.00 of the participant's contribution not in excess of 3% of the participant's annual wages. The total contribution expense under the 401(k) plans was $319,000, $165,000 and $177,000 in 1995, 1994, and 1993, respectively.
The Company does not provide any significant post-retirement benefits other than the pension plans and 401(k) plans described above.
(10) Quarterly Financial Data (Unaudited) ------------------------------------
Quarterly results of operations (unaudited) for 1995 and 1994 are summarized as follows (in thousands, except per share data):
Quarter ended ------------- Mar. 31 June 30 Sept. 30 Dec. 31 ------- ------- -------- ------- 1995: Net sales $40,043 $39,394 $35,940 $61,042 Gross profit 11,390 12,657 10,446 21,161 Net earnings 1,692 2,020 1,673 3,955 Net earnings per share .28 .33 .28 .49
1994: Net sales $34,960 $37,816 $36,591 $37,077 Gross profit 10,329 11,206 10,850 10,963 Net earnings 1,370 1,742 1,884 1,948 Net earnings per share .23 .29 .31 .32
The shares issued and options assumed in connection with the Pulse acquisition affected the weighted average shares outstanding used for calculating earnings per share in 1995. Refer to Note 2 for additional information.
(continued)
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TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(11) Stock-Based Compensation The Company has an incentive compensation plan for key employees of the Company and its subsidiaries. The Plan grants the recipient the right of ownership of Technitrol, Inc. common stock, conditional on the attainment of defined performance goals and/or continued employment with the Company. A summary of the shares under the incentive compensation plan is as follows:
Awarded, Available to Not Yet be Granted Released ------------ -------- Shares authorized 600,000 Awarded during years prior to 1995 (377,510) 377,510 Shares released to recipients prior to 1995 (197,810) ------- -------- Balance at December 31, 1994 222,490 179,700 Awarded during 1995, net 24,545 Shares released to recipients during 1995 (41,955) ------- ------- Balance at December 31, 1995 197,945 137,745 ======= =======
During the years ended December 31, 1995, 1994 and 1993, the Company issued to employees, net of cancellations, Incentive Compensation Shares having an approximate fair value at date of issue of $375,000, $414,000 and $159,000, respectively. Shares are held by the Company until the defined performance goals and/or continued employment requirement have been attained. The market value of the shares at the date of grant is charged to expense during the vesting period on a straight-line basis. Amounts charged to expense as a result of the incentive compensation plan and related expenses were $1,517,000 in 1995, $994,000 in 1994 and $658,000 in 1993.
Separately, in connection with the Pulse acquisition, options which had been granted for the purchase of Pulse common shares were assumed by the Company and converted into options to purchase Technitrol common stock. Additional information about the options assumed is provided in Note 2. At December 31, 1995, 265,000 options remained outstanding. No additional options are expected to be granted under the assumed plans.
(continued)
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TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(12) Supplementary Information, --------------------------
Charged directly to costs and expenses (in thousands):
1995 1994 1993 ------ ----- ------ Depreciation $5,828 $5,016 $4,901 Amortization of intangible assets 417 255 90 Advertising 1,118 1,159 1,117 Repairs and maintenance 2,540 1,936 1,162 Bad debt expense 109 114 76
Cash payments made (in thousands):
Income taxes $3,559 $3,663 $1,320 Interest 1,428 1,058 389
(13) Segment Information ------------------- The "Industry Segment Information" and "Geographic Information" sections on pages 2, 3 and 4 of this Form 10-K is an integral part of the Company's financial statements.
(14) Subsequent Event ---------------- On February 27, 1996 the Company sold certain assets of the Products Division to an unrelated party. As a result of the sale, the Company will discontinue its production and marketing of document counters and dispensers, the sales of which approximated $4.9 million in 1995. The consideration received approximated $3.6 million and the pre-tax gain realized on the sale (after recognition of related costs and expenses) approximated $1.5 million.
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TECHNITROL, INC. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands of dollars)
(1) This amount represents the acquired reserve of Pulse Engineering, Inc. The additions and deductions to the reserve represents Pulse's 1995 activity subsequent to its acquisition by Technitrol.
Doubtful accounts are written-off as identified.
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EXHIBIT INDEX
DOCUMENT - -------- 3. (a) Articles of Incorporation Filed herewith (b) By-laws Filed herewith 4. Instruments defining rights of Incorporated by reference to security holders Form 10-K for the year ended December 31, 1982. 11. Computation of Primary and Fully Diluted Earnings Per Share Page 36 21. Subsidiaries of Registrant Page 37 23. Consent of Certified Public Accountants Page 38 27. Financial Data Schedule Electronic Filing Only
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