Exhibit index
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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 1995, or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period
from ______________ to ______________.
Commission File No. 1-5375
TECHNITROL, INC.
--------------------------------------------------
(Exact name of registrant as specified in Charter)
PENNSYLVANIA 23-1292472
- ------------------------------------------ ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) 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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. YES X NO
----- -----
Common Stock - Shares Outstanding as of March 31, 1995: 6,048,417
Page 1 of 11
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
(in Thousands of Dollars)
Assets March 31, 1995 Dec. 31, 1994
- -------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 5,400 $ 8,716
Receivables:
Trade 24,781 22,614
Other 310 139
Inventories:
Finished goods 4,896 5,471
Work in process 8,915 8,420
Raw materials and supplies 9,744 7,823
------- -------
Total inventories 23,555 21,714
Prepaid expenses 1,105 851
------- -------
Total current assets 55,151 54,034
------- -------
Property, plant and equipment 56,740 55,180
Less accumulated depreciation 32,109 30,809
------- -------
Net property, plant and equipment 24,631 24,371
Deferred income taxes 2,259 2,409
Other assets 3,764 3,941
------- -------
$85,805 $84,755
======= =======
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------
Current liabilities:
Current installments of long-term debt $ 22 $ 22
Short-term debt 321 756
Accounts payable 7,307 5,841
Income taxes payable 1,723 1,916
Dividends payable 575 572
Accrued payroll 2,502 3,118
Accrued pension expense 4,854 4,589
Other accrued expenses 8,116 7,060
------- -------
Total current liabilities 25,420 23,874
------- -------
Long-term debt, excluding current installments 13,119 15,124
Shareholders' equity:
Common stock 1,118 1,118
Additional paid-in capital 4,724 4,329
Retained earnings 47,040 45,923
------- -------
52,882 51,370
Less: Cost of treasury stock (4,531) (4,573)
Unearned compensation under
stock award plan (869) (560)
Cumulative translation adjustment (216) (480)
------- -------
Net shareholders' equity 47,266 45,757
------- -------
$85,805 $84,755
======= =======
See accompanying notes to consolidated financial statements.
Page 2 of 11
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months
Ended March 31
---------------------------
1995 1994
- -----------------------------------------------------------------------------
1. Net sales $ 40,043 $ 34,960
2. Costs and expenses
a) Cost of goods sold 29,502 25,517
b) Selling, general and
administrative expenses 7,775 6,934
--------- ---------
Total costs and expenses 37,277 32,451
3. Operating profit 2,766 2,509
4. Other income (expense)
Interest (235) (270)
Other (96) (39)
--------- ---------
Total other income (expense) (331) (309)
5. Earnings before taxes 2,435 2,200
6. Income taxes 743 830
--------- ---------
7. Net earnings $ 1,692 $ 1,370
========= =========
8. Weighted average common
shares outstanding 6,042,799 6,016,677
9. Earnings per share $.28 $.23
10. Dividends declared per share $.095 $.093
Dollar amounts are in thousands except for earnings per share and dividends
per share.
See accompanying notes to consolidated financial statements.
Page 3 of 11
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994
(In Thousands of Dollars)
March 31, 1995 March 31, 1994
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $1,692 $1,370
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,382 1,313
Gain on disposal of equipment (6) --
Changes in assets and liabilities net of
effect of acquisition:
Increase (decrease) in income taxes payable (140) 645
Increase in accounts payable 1,605 1,504
Increase in accrued expenses 487 2,721
(Increase) in accounts receivable (2,055) (3,733)
(Increase) in inventories (1,766) (1,208)
(Increase) in other non-current assets (97) (708)
Other, net (81) 303
------ ------
Net cash provided by operating activities 1,021 2,207
------ ------
Cash flows from investing activities:
Acquisition of capital stock of the Fil-Mag
Group, net of cash acquired -- (8,805)
Capital expenditures, exclusive of
acquired businesses (1,488) (1,184)
Proceeds from sale of property, plant
and equipment 6 --
------ ------
Net cash used in investing activities (1,482) (9,989)
------ ------
Cash flows from financing activities:
Dividends paid (572) (559)
Repayment of Fil-Mag Group funded indebtedness -- (1,014)
Proceeds of long-term debt -- 10,000
Principal payments of long-term debt (2,005) (7)
Net repayment of short-term debt (439) (2,085)
------ ------
Net cash provided (used) by
financing activities (3,016) 6,335
------ ------
Net effect of exchange rate changes on cash 161 (1)
Net (decrease) in cash and cash equivalents (3,316) (1,448)
Cash and cash equivalents at beginning of year 8,716 7,721
------ ------
Cash and cash equivalents at March 31 $5,400 $6,273
------ ------
See accompanying notes to consolidated financial statements.
Page 4 of 11
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Accounting Policies
For a complete description of the accounting policies of Technitrol, Inc.
and its consolidated subsidiaries ("the Company"), refer to Note 1 to the
financial statements included in the Company's Form 10-K filed for the year
ended December 31, 1994.
Reclassifications
Certain amounts in the 1994 financial statements have been reclassified to
conform with the current year's presentation.
(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 $3.0 million has been retired since the
acquisition. 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 current 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 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.
Page 5 of 11
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(3) (In Part) Shareholders' Equity
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 for 1994 have been
restated to retroactively reflect the stock split.
(4) Supplemental Disclosure of Non-cash Transactions
During the three months ending March 31, 1995 and 1994, the Company issued
to employees stock pursuant to the Company's Restricted Stock Plan having a
fair value of $406,000 and $469,000, respectively.
(5) Subsequent Event
On April 24, 1995, Pulse Engineering, Inc. ("Pulse") accepted the
Company's revised offer to purchase all of the issued and outstanding Class A
common stock of Pulse in a transaction structured as a merger. Additional
information regarding this event is contained in Part II, Item 5 (p. 9) of this
Form 10-Q.
Page 6 of 11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The results for the first quarter of 1995 have been prepared by
Technitrol's management without audit or participation by its independent
auditors. In the opinion of management, the financial statements fairly
present the results of Technitrol's operations for the period presented and the
consolidated balance sheet at March 31, 1995. To the best knowledge and belief
of Technitrol, all normal recurring accruals and adjustments have been made to
properly reflect income and expenses attributable to this period.
Liquidity and Capital Resources
Cash and cash equivalents totalled $5.4 million at the end of the first
quarter, compared to $8.7 million at December 31, 1994. Working capital was
$29.7 million, compared to $30.2 million at the end of last year.
Operating activities provided $1.0 million in cash for the quarter.
Contributing to the positive cash flow were net earnings of $1.7 million and
depreciation and amortization of $1.4 million. In addition, accounts payable
increased $1.6 million, primarily caused by (and offset by the negative cash
effect of) a $1.8 million increase in inventories. The accounts receivable
increase of $2.1 million during the quarter consumed cash. These increases in
accounts receivable and inventories were caused by increased sales during the
period. Accrued expenses increased $.5 million during the quarter as a result
of various items, including additional pension expense accruals.
Cash used in investing activities was $1.5 million, due to capital
expenditures made during the quarter.
Cash used by financing activities was $3.0 million. Cash was consumed by
dividend payments ($.6 million), repayment of short-term debt ($.4 million) and
principal payments of long-term debt of $2.0 million.
Recent balance sheet composition has been:
March 31, December 31, March 31,
1995 1994 1994
---------------------------------------
Cash & cash equivalents 6% 10% 8%
Other current assets 58% 53% 53%
Plant, property & equipment 29% 29% 31%
Other assets 7% 8% 8%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
Current liabilities 30% 28% 30%
Long-term debt 15% 18% 19%
Shareholders' equity 55% 54% 51%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
Page 7 of 11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Results of Operations
Sales in the first quarter of 1995 increased 14.5% from the first quarter
of 1994 to $40.0 million. The increase was attributable to including a full
quarter of sales of the Fil-Mag Group, acquired January 17, 1994, and a 6.5%
increase in the collective sales of the Company's other businesses, compared to
their first quarter 1994 sales. All three of Technitrol's business segments
experienced increased first quarter sales in 1995 compared to 1994.
The March 31 backlog was $32.2 million, which represented an increase from
the $28.7 million backlog at December 31, 1994. While the domestic market of
the Electronic Products Segment experienced further softening of demand,
bookings exceeded shipments for the quarter for both the Metallurgical Products
Segment and the End User / Finished Products Segment.
The increased quarterly sales of the Electronic Products Segment reflected
an increase in Fil-Mag Group sales exceeding a decrease in the sales of the
Company's Components Division. Quarterly gross profits for the segment
declined from prior year levels, as did operating profits, since the loss of
the higher profit margin sales in the Components Division was not offset by the
increased profits of the Fil-Mag Group. After tax earnings of the segment
benefited from the favorable offshore effective tax rates of entities within
the Fil-Mag Group, relative to that of the Components Division, which is a
domestic entity.
The Metallurgical Products Segment's increase in quarterly sales from the
comparable prior year period was primarily due to the shipments of Chace
Precision Metals. Quarterly gross profits and operating profits of the segment
also increased over 1994 levels. The increase included profit improvements of
the Export, PA plant of Advanced Metallurgy, Inc. That plant includes the
product line acquired from Engelhard in 1991. AMI's major markets are cyclical
and reflect general trends in housing, automotive, appliances and capital
equipment.
End User/Finished Products Segment quarterly sales increased primarily as
a result of an increase in sales of Lloyd Instruments. Approximately two-thirds
of the sales increase at Lloyd resulted from the November 1994 acquisition of
the assets of Erichsen, a German competitor. Profits for this segment,
however, were lower than in the first quarter of last year as decreased
profitability at Chatillon and Products Division, both on slightly lower sales,
more than offset the profit improvement of Lloyd. Sales and earnings of the
Products Division are lower as banking institutions continue to consolidate and
domestic and foreign suppliers offer very competitively priced products.
Total selling, general and administrative expenses increased to
$7,775,000, but decreased slightly as a percentage of sales. Those expenses
included a full quarter of activity of the Fil-Mag Group, along with costs
associated with executive hiring at the corporate level.
Net interest expense declined to $235,000 for the quarter, down from that
of the comparable prior year period. The decrease reflected a $2 million
principal payment of long-term debt during February 1995.
The effective tax rates in the quarter were 30.5% in 1995 and 37.7% in
1994. The decrease was caused by proportionately more taxable income earned by
the Company's offshore operating units, including Fil-Mag, which generally
incur lower tax rates than those experienced by Technitrol's domestic operating
units.
Page 8 of 11
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS NONE
ITEM 2 CHANGES IN SECURITIES NONE
ITEM 3 DEFAULTS UPON SENIOR SECURITIES NONE
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE
ITEM 5 OTHER INFORMATION
On April 24, 1995, Pulse Engineering, Inc. ("Pulse") accepted Technitrol's
revised offer to purchase all of the issued and outstanding Class A common
stock of Pulse in a transaction structured as a merger. Under its revised
offer, Technitrol will purchase all the issued and outstanding Pulse shares for
approximately $28.5 million in cash and approximately 1,950,000 shares of
Technitrol stock. A shareholder receiving a pro rata allocation of the
consideration will receive $4.25 in cash and .2906 shares of Technitrol common
stock for each Pulse share owned. At closing, the .2906 shares of Technitrol
will be adjusted upward if the average closing price for Technitrol's stock is
below $13-3/4 and will be adjusted downward if the average closing price is
above $16-3/8, both calculated on the closing prices during the ten trading
days preceding the day prior to the closing.
The acceptance by Pulse is subject to execution of a legally binding
definitive agreement which will contain normal and customary representations,
warranties, terms and conditions for transactions of this type including
receipt of a fairness opinion, necessary regulatory approvals and approval by
the shareholders of both companies. Technitrol's board of directors has
approved the offer and, subject to an agreement, it will recommend to its
shareholders that they approve it at a special meeting of the shareholders to
be called later this year. The merger is expected to be completed in the third
calendar quarter of 1995.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits NONE
(b) Reports NONE
Page 9 of 11
EXHIBIT INDEX
DOCUMENT
3. (a) Articles of Incorporation Incorporated by reference to
Form 10-Q for quarter ended
September 30, 1985.
(b) Bylaws Incorporated by reference to
Form 10-Q for the quarter ended
September 30, 1990.
4. Instruments defining rights of Incorporated by reference to
security holders Form 10-K for the year ended
December 31, 1982.
21. Subsidiaries of Registrant Page 10
27. Financial Data Schedule Electronic Filing Only
EXHIBIT (21) SUBSIDIARIES OF THE REGISTRANT
Technitrol, Inc., which has no parent, has the following subsidiaries:
Name State of Incorporation Percent Owned
- ------------------------------------------------------------------------------
John Chatillon & Sons, Inc. New York 100%
Advanced Metallurgy, Inc. Pennsylvania 100%
Technitrol International, Inc. Delaware 100%
Chace Precision Metals, Inc. Delaware 100%
Lloyd Instruments, Ltd. United Kingdom 100%
Fil-Mag, Inc. California 100%
Fil-Mag Taiwan Corporation Taiwan 100%
Fil-Mag Philippines Corporation Philippines 100%
Technitrol Investments, Inc. Delaware 100%
Page 10 of 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNITROL, INC.
--------------------------------------
(Registrant)
May 2, 1995 /s/Robert J. Citrino
- ---------------------------------- --------------------------------------
(Date) Robert J. Citrino
Treasurer and Chief Financial Officer
May 2, 1995 /s/Albert Thorp, III
- ---------------------------------- ---------------------------------------
(Date) Albert Thorp, III
Corporate Controller and Principal
Accounting Officer
Page 11 of 11