SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 25, 1996
TECHNITROL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA #1-5375 #23-1292472
- ------------------------ ------------------ ----------------------
(State of incorporation) Commission File No. (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
--------------
Page 1 of 11
The undersigned registrant hereby amends the following items, financial
statements and exhibits of its report on Form 8-K dated November 8, 1996 as
set forth in the following pages:
Item 7. Financial Statements and Exhibits
Paragraphs (a) and (b) of Item 7 are amended in their entirety.
Page 2 of 11
Item 7. Financial Statements and Exhibits
(a) Financial Statements of the Businesses Acquired
Doduco GmbH & Co. Dr. Eugen Durrwachter and Subsidiary Page(s)
Independent Auditors' Report F - 2
Consolidated Statements of Assets and Liabilities
Related to Product Lines and Operations Acquired by
Technitrol, Inc. as of December 31, 1995 and 1994 F - 3
Consolidated Statements of Revenues and Expenses Related
to Product Lines and Operations Acquired by
Technitrol, Inc. for the Years Ended
December 31, 1995 and 1994 F - 4
Consolidated Statements of Cash Flows Related to Product
Lines and Operations Acquired by Technitrol, Inc.
for the Years Ended December 31, 1995 and 1994 F - 5
Notes to Consolidated Financial Statements F - 6
(b) Pro Forma Financial Information
Pro Forma Condensed Combined Financial Information
of Technitrol, Inc. and Acquired Businesses
(unaudited) 4
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1996 (unaudited) 5
Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1995 (unaudited) 6
Pro Forma Condensed Combined Statement of Operations
for the Nine Months Ended September 30, 1996
(unaudited) 7
Notes to Pro Forma Condensed Combined Financial
Statements (unaudited) 8
Page 3 of 11
Pro Forma Condensed Combined Financial Information of Technitrol, Inc.
and Acquired Businesses (unaudited)
The following unaudited pro forma condensed combined financial
information presents the Pro Forma Condensed Combined Balance Sheet as of
September 30, 1996 of Technitrol, Inc. and its consolidated subsidiaries (the
"Company" or the "Registrant") and of Doduco GmbH ("DDG") and of Doduco
Espana ("DDE") giving effect to the acquisition of DDG and DDE as if the
acquisition had been consummated on September 30, 1996. The Pro Forma
Condensed Combined Statement of Operations is presented for the year ended
December 31, 1995 and for the nine months ended September 30, 1996 giving
effect to the acquisition of DDG and DDE as if the acquisition had been
consummated on January 1, 1995. The combination of DDG and DDE is referred
to below as "Doduco" or the "Acquired Businesses."
The unaudited pro forma condensed combined financial information is
based on the historical consolidated financial statements of the Company and
the historical consolidated financial statements of Doduco after giving effect
to the acquisition transaction under the purchase method of accounting and the
assumptions and adjustments described in the accompanying Notes to Pro Forma
Condensed Combined Financial Statements. DDG experienced significant
financial difficulty for a number of years and entered into bankruptcy during
June of 1996 and Receivership in August of 1996. The assets of DDG which
were acquired by the Company were acquired from a Receiver and, prior to the
Company's purchase of those assets, other isolated assets and product lines
of DDG were sold or abandoned by DDG or the Receiver. In addition,
significant restructuring occurred after December 31, 1995 related to both
the product lines acquired by the Company as well as those otherwise disposed
of or abandoned by the Receiver. The net assets acquired by the Company
relate to product lines and operations which were not operated as a separate
business entity but rather were an integral part of Doduco GmbH & Co. and its
subsidiary, Doduco Espana. As a result of the foregoing, management of the
Company does not believe that the pro forma condensed combined financial
information is indicative of the results that actually would have occurred if
the acquisition had been consummated on the date indicated or which may be
attained in the future.
Page 4 of 11
Technitrol, Inc. and Doduco
Pro Forma Condensed Combined Balance Sheet
September 30, 1996
(Unaudited)
(In thousands of dollars)
Historical
Historical Doduco Pro Forma
Technitrol Note (1) Adjustments Note (2) Pro Forma
- ------------------------------------------------------------------------------------------
Assets
Cash and equivalents $24,396 $400 $24,796
Accounts receivable, net 35,129 3,400 (106) (a) 38,423
Inventories 29,259 23,577 52,836
Prepaid expenses and other
current assets 3,492 182 3,674
------- ------- --------
Current assets 92,276 27,559 119,729
Property, plant and
equipment, net 44,005 39,414 42,096 (b)
(75,632) (c) 49,883
Other assets 18,993 0 18,993
-------- ------- --------
$155,274 $66,973 $188,605
======== ======= ========
Liabilities and
shareholders' equity
Notes payable and current
maturities of long-term
debt $2,021 $3,719 $5,740
Accounts payable and (106) (a)
accrued expenses 41,675 5,067 2,640 (d) 49,276
------ ------- --------
Current liabilities 43,696 8,786 55,016
Long-term debt 6,587 3,850 17,820 (d) 28,257
Other long-term liabilities 6,374 341 6,715
------- ------- --------
56,657 12,977 89,988
Shareholders' equity 98,617 53,996 (53,996) (e) 98,617
-------- ------- --------
$155,274 $66,973 $188,605
======== ======= ========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
Page 5 of 11
Technitrol, Inc. and Doduco
Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 1995
(Unaudited)
(In thousands, except earnings per share)
Historical
Historical Doduco Pro Forma Pro
Technitrol Note (1) Adjustments Note Forma
- ------------------------------------------------------------------------------------------
Net sales $176,419 $176,515 (623) (3) $352,311
Cost of sales 120,765 150,576 (623) (3)
-------- --------
(5,175) (4) 265,543
--------
Gross profit 55,654 25,939 86,768
Selling, general and (216) (4)
administrative expenses 40,165 29,200 (1,383) (6) 67,766
-------- -------- --------
Operating profit (loss) 15,489 (3,261) 19,002
Other income (expense):
Interest, net (1,009) (8,056) (6,465) (7) (2,600)
Other, net 61 0 61
-------- -------- --------
Earnings (loss) before
income taxes 14,541 (11,317) 16,463
Income taxes 5,201 0 1,110 (8) 6,311
-------- -------- --------
Net earnings (loss) $9,340 $(11,317) $10,152
======== ======== ========
Earnings (loss) per share $1.43 $1.55
======== ========
Weighted average shares
outstanding 6,538 6,538
======== ========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
Page 6 of 11
Technitrol, Inc. and Doduco
Pro Forma Condensed Combined Statement of Operations
Nine Months Ended September 30, 1996
(Unaudited)
(In thousands, except earnings per share)
Historical
Historical Duduco Pro Forma Pro
Technitrol Note (1) Adjustments Note Forma
- ------------------------------------------------------------------------------------------
Net sales $189,933 $120,060 (699) (3) $309,294
Cost of sales 124,955 100,637 (699) (3)
-------- --------
(3,783) (4)
164 (5) 221,274
--------
Gross profit 64,978 19,423 88,020
Selling, general and (158) (4)
administrative expenses 42,798 16,319 (1,994) (6) 56,965
Gain on sale of Products
Division (1,471) 0 (1,471)
-------- -------- --------
Operating profit 23,651 3,104 32,526
Other income (expense):
Interest, net (138) (6,036) (4,418) (7) (1,756)
Other, net (45) 51 6
-------- -------- --------
Earnings (loss) before
income taxes 23,468 (2,881) 30,776
Income taxes 8,496 0 4,168 (8) 12,664
-------- -------- --------
Net earnings (loss) $14,972 $(2,881) $18,112
======== ======== ========
Earnings per share $1.86 $2.27
======== ========
Weighted average shares
outstanding 7,991 7,991
======== ========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
Page 7 of 11
Notes to Pro Forma Condensed Combined Financial Statements
(1) The historical financial statements of Doduco present, in accordance
with United States Generally Accepted Accounting Principles, the assets
and liabilities and the revenues and expenses of the product lines and
operations of Doduco GmbH & Co. and subsidiary which were acquired by
Technitrol, Inc. effective November 1, 1996.
The net assets include (i) the historical carrying values of inventories,
property, plant and equipment, and liabilities (principally vacation and
holiday-pay related liabilities) associated with the acquired product
lines and operations in Germany and (ii) all of the assets and liabilities
of Doduco Espana S.A., a subsidiary with operations in Spain. All material
intercompany transactions and balances between the acquired product
lines and operations in Germany and Doduco Espana S.A. have been
eliminated. The acquired product lines and operations have never been
operated as a separate business entity but rather have been an integral
part of Doduco GmbH & Co. and subsidiary. The statements of revenues
and expenses include the net sales, cost of goods sold, and personnel and
other expenses that relate to the acquired product lines. Certain
expenses, including overheads and interest expense, have been allocated
based on estimations and assumptions as if the acquired product lines had
been operated on a stand-alone basis during the periods presented.
On June 13, 1996, DDG filed for bankruptcy protection in Germany. The
historical consolidated financial statements of Doduco do not represent
the financial statements of DDG and, accordingly, do not include any
effects of the bankruptcy filing.
The 1995 historical results of Doduco include charges of approximately
$4,150,000 related to termination costs for approximately 300 persons
employed in the product lines and operations acquired by the Company.
Pro Forma Condensed Combined Balance Sheet
(2) The Company purchased certain inventories and property, plant and
equipment of DDG, the capital stock of DDE and assumed approximately
$4.3 million of DDG's liabilities. The transaction was effective on
November 1, 1996 and the purchase price was as follows:
Cash paid for certain assets of DDG and capital
stock of DDE (from proceeds of 27.0 million
Deutsche Mark debt) $17,820,000
Transaction and related acquisition costs 2,640,000
-----------
$20,460,000
===========
The fair value of the net assets acquired was approximately $96,092,000
at September 30, 1996. In addition, the Company entered into
consignment-type leasing arrangements for approximately $19 million of
precious metals to be used within the inventories of Doduco's operations.
Page 8 of 11
Notes to Pro Forma Condensed Combined Financial Statements - (Continued)
Pro forma balance sheet adjustments consist of:
(a) elimination of intercompany trade receivables and payables between the
Company and Doduco,
(b) an increase of $42,096,000 to reflect the fair value of property, plant
and equipment based on independent appraisals,
(c) allocation of negative goodwill of $75,632,000 to non-current assets,
(d) debt incurred and accruals for transaction and related acquisition
costs, and
(e) elimination of the equity accounts of Doduco.
The pro forma adjustments to the Condensed Combined Balance Sheet assume that
the acquisition occurred on September 30, 1996. The purchase price includes
estimated professional fees and other expenses associated with the
transaction. The total purchase price may be adjusted as the actual expenses
are determined; however, any such adjustments are not expected to be material
to the financial position of the Company.
Pro Forma Condensed Combined Statements of Operations
(3) Trade sales between the Company and Doduco have been eliminated. Such
sales were $623,000 and $699,000 for the year ended December 31, 1995
and for the nine months ended September 30, 1996, respectively. No
significant amount of material relating to such sales remained in the
inventory of the Company or Doduco at December 31, 1995 or
September 30, 1996.
(4) Cost of sales in 1995 has been decreased by $5,175,000 ($3,783,000 for
the nine-month period ended September 30, 1996) to reflect the lower
depreciation expense associated with the lower property, plant and
equipment values resulting from the purchase price allocation.
Selling, general and administrative expenses are decreased by $216,000
in 1995 ($158,000 for the 1996 period) to reflect the lower
depreciation expense. Depreciation expense has been calculated on a
straight-line basis, using estimated useful lives of 30 years for
buildings and 5 years for machinery and equipment.
(5) Cost of sales has been increased by approximately $164,000 for
the period ended September 30, 1996 to reflect the additional annual
transaction costs associated with leased precious metals inventories
held on consignment. The precious metal leases contain no minimum
purchase quantities and generally require that payment is made to the
lessor at the time the finished products containing precious metal are
shipped to the customer. The transaction fee included in the lease
approximates 1.2% of the value of inventories held on consignment. At
September 30, 1996, Doduco owned its precious metal inventories, but
during 1995 had similar leasing arrangements.
Page 9 of 11
Notes to Pro Forma Condensed Combined Financial Statements - (Continued)
(6) The Company did not assume the DDG pension plan and does not
currently intend to implement a similar benefit plan. Accordingly,
pension expense has been eliminated from the combined pro forma
statements. The pension expense for DDG was approximately $1,383,000
and $1,994,000 for the year ended December 31, 1995 and for the nine
months ended September 30, 1996, respectively.
(7) The historical interest expense of DDG has been eliminated as none of
the debt in Germany was assumed by the Company; however, interest
expense has been recorded to reflect the interest on debt associated
with the acquisition, indebtedness of DDE (which the Company expects to
refinance in the near future) as well as the estimated debt ($20
million) necessary to finance the prospective working capital needs of
the acquired business inasmuch as the Company did not acquire the
accounts receivable (or assume the accounts payable) of DDG. The
estimated debt necessary to finance Doduco's working capital needs was
calculated using the historical working capital levels of the product
lines and operations acquired less the precious metal inventories which
have been leased by the Company. Interest expense has been calculated
using an annual rate of 3.8%, which approximates the Company's actual
interest rate for borrowings in Germany under the Company's recently
completed $40 million multi-currency facility.
(8) Adjustment was made to the provision for income taxes, providing for all
income taxes applicable to the pro forma adjustments at appropriate
rates in Germany and Spain. No deferred taxes are provided on the
unremitted earnings since such earnings are expected to be reinvested
for the foreseeable future.
Page 10 of 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TECHNITROL, INC.
By: /s/ Albert Thorp, III
---------------------------
Albert Thorp, III
Vice President - Finance,
Treasurer and Chief Financial
Officer
/s/ Drew A. Moyer
---------------------------
Drew A. Moyer
Corporate Controller, Assistant
Treasurer and Principal
Accounting Officer
Date: January 7, 1997
Page 11 of 11
The Product Lines and Operations of
Doduco GmbH + Co Dr. Eugen Durrwachter and Subsidiary
Acquired By Technitrol
Consolidated Financial Statements
December 31, 1995 and 1994
With Independent Auditors' Report Thereon
F-1
Independent Auditors' Report
The Board of Directors
Doduco GmbH + Co Dr. Eugen Durrwachter
Pforzheim, Germany
We have audited the accompanying consolidated statements of assets and
liabilities of the product lines and operations of Doduco GmbH + Co Dr.
Eugen Durrwachter and subsidiary, acquired effective November 1, 1996,
by Albert Thorp Holding GmbH, Germany, and Albert Thorp GmbH, Germany,
both wholly-owned subsidiaries of Technitrol, Inc., Trevose, PA, U.S.A.
(the "Acquired Operations"), as of December 31, 1995, and 1994, and the
related consolidated statements of revenues and expenses and cash flows
for the years then ended. These consolidated financial statements are
the responsibility of the management of Doduco GmbH + Co Dr. Eugen
Durrwachter. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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.
The Acquired Operations comprise the Spanish subsidiary of Doduco GmbH + Co
Dr. Eugen Durrwachter as well as selected activities which were operated as
an integral part of Doduco GmbH + Co Dr. Eugen Durrwachter and had no
separate legal existence. The basis of preparation of the accompanying
consolidated financial statements is described in note 1.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the assets and liabilities of the Acquired
Operations as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America,
as more fully described in note 1 to the consolidated financial statements.
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Frankfurt am Main, Germany
January 6, 1997
F-2
The Product Lines and Operations of
Doduco GmbH + Co Dr. Eugen Durrwachter and Subsidiary
Acquired by Technitrol
Consolidated Statements of Assets and Liabilities
December 31, 1995 and 1994
(amounts in U.S.-dollars)
1995 1994
---------------------------
Current assets:
Cash and cash equivalents $ 146,960 159,151
Accounts receivable, less allowances:
1995 $203,217; 1994 $186,715 3,050,125 1,460,483
Inventories 34,583,059 36,336,230
Other current assets 155,745 310,055
----------- ----------
Total current assets 37,935,889 38,265,919
Property, plant and equipment, at cost less
accumulated depreciation 44,067,043 40,961,199
Other assets 18,876 22,157
----------- ----------
Total assets $82,021,808 79,249,275
----------- ----------
Current liabilities:
Current bank loans $ 3,534,253 1,818,574
Current portion of long-term debt 326,135 18,558
Current portion of capital lease liabilities 157,638 139,226
Accounts payable 1,517,203 3,338,263
Other current liabilities 1,353,086 3,128,147
----------- ----------
Total current liabilities 6,888,315 8,442,768
Long-term debt 3,696,527 200,451
Long-term capital lease liabilities 141,737 199,305
Other long-term liabilities 362,110 0
----------- ----------
Total liabilities $11,088,689 8,842,524
----------- ----------
Net assets $70,933,119 70,406,751
=========== ==========
See accompanying Notes to Consolidated Financial Statements
F-3
The Product Lines and Operations of
Doduco GmbH + Co Dr. Eugen Durrwachter and Subsidiary
Acquired by Technitrol
Consolidated Statements of Revenues and Expenses
Years ended December 31, 1995 and 1994
(amounts in U.S.-dollars)
1995 1994
-----------------------------
Net sales $176,515,266 147,755,768
Cost of sales (150,576,413) (127,694,520)
------------ ------------
Gross profit 25,938,853 20,061,248
Selling expenses (12,235,775) (11,972,389)
General and administrative expenses (16,964,140) (12,031,126)
------------ ------------
Loss before interest and income taxes (3,261,062) (3,942,267)
Interest income 527,934 373,321
Interest expense (8,583,937) (6,762,990)
------------ ------------
Loss before income taxes (11,317,065) (10,331,936)
Provision for income taxes 0 0
------------ ------------
Net loss $(11,317,065) (10,331,936)
============ ============
See accompanying Notes to Consolidated Financial Statements
F-4
The Product Lines and Operations of
Doduco GmbH + Co Dr. Eugen Durrwachter and Subsidiary
Acquired by Technitrol
Consolidated Statements of Cash Flows
Years ended December 31, 1995 and 1994
(amounts in U.S.-dollars)
1995 1994
---------------------------
Operating activities
Net loss $(11,317,065) (10,331,936)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization of property,
plant and equipment 6,020,732 5,892,752
(Gain)/loss on sale of equipment (907,043) 281,257
Changes in assets and liabilities:
Accounts receivable (1,428,613) (409,156)
Inventories 4,795,416 (2,818,545)
Accounts payable (2,069,799) 1,396,282
Other working capital items (1,871,975) 1,952,206
Other noncurrent assets and liabilities 359,314 4,767
----------- ----------
Net cash used in operating activities $(6,419,033) (4,032,373)
----------- ----------
Investing activities
Additions to property, plant and equipment $(6,144,081) (4,770,227)
Proceeds from sale of equipment 1,311,087 75,298
----------- ----------
Net cash used in investing activities $(4,832,994) (4,694,929)
----------- ----------
Financing activities
Proceeds from borrowings of long-term debt $ 3,722,558 225,555
Repayment of long-term debt (21,050) (8,706)
Increase in current bank loans 1,520,938 587,766
Increase (decrease) in capital lease liabilities (67,564) 227,495
Effect on cash of transactions and changes
relating to assets not acquired and
liabilities not assumed 6,071,464 7,831,329
----------- ----------
Net cash provided by financing activities $11,226,346 8,863,439
----------- ----------
Effect of exchange rate changes on cash $ 13,490 2,940
----------- ----------
Increase (decrease) in cash and cash equivalents $ (12,191) 139,077
Cash and cash equivalents at beginning of year 159,151 20,074
----------- ----------
Cash and cash equivalents at end of year $ 146,960 159,151
=========== ==========
See accompanying Notes to Consolidated Financial Statements
F-5
The Product Lines and Operations of
Doduco GmbH + Co Dr. Eugen Durrwachter and Subsidiary
Acquired by Technitrol
Notes to the Consolidated Financial Statements
December 31, 1995 and 1994
(All amounts in U.S.-dollars)
1. Basis of Presentation and Summary of Accounting Policies
Acquisition--Effective November 1, 1996, Albert Thorp Holding GmbH, Germany,
and Albert Thorp GmbH, Germany, both wholly-owned subsidiaries of
Technitrol Inc., a United States corporation, acquired certain of the product
lines and operations (the "Acquired Operations") of Doduco GmbH + Co Dr.
Eugen Durrwachter, Pforzheim, Germany, ("Doduco Germany"), and the stock of
its subsidiary (together "Doduco"). The Acquired Operations' principal
business is the production and marketing of electrical contacts containing
precious metals, for the electrical, household appliance and electronics
industries, and of by-products obtained in the processing and handling
of precious metals, as well as precious metal recovery and refining.
The Acquired Operations have three principal manufacturing locations,
Pforzheim and Sinsheim, Germany, and Madrid, Spain.
Basis of Presentation--As more fully described below, the accompanying
consolidated financial statements present the assets acquired and liabilities
assumed ("Net Assets") and the associated revenues, expenses and cash flows
of the Acquired Operations. The accompanying consolidated financial
statements have been prepared in accordance with United States generally
accepted accounting principles ("U.S. GAAP").
The Net Assets included in the consolidated statement of assets and
liabilities include (i) the historical carrying values of inventories,
property, plant and equipment, and liabilities (principally vacation and
holiday-pay related liabilities) associated with the Acquired Operations in
Germany (the "Acquired German Operations") and (ii) all of the assets and
liabilities of Doduco Espana S.A., the Spanish subsidiary of Doduco (the
"Spanish Operations"). All material intercompany transactions and balances
between the German Operations and Spanish Operations have been eliminated in
determining the consolidated financial statements.
The consolidated statements of revenues and expenses and cash flows include
the revenues, expenses and cash flows of the Acquired Operations. Certain
amounts, principally general overheads, related to the German Operations
included in the consolidated statements of revenues and expenses have been
allocated based upon estimations and assumptions as-if the Acquired
Operations had been operating on a stand-alone basis for all periods
presented. Management believes that the allocation methods employed are
reasonable under the circumstances; however, such allocations may not be
indicative of the amounts that would have been incurred if the Acquired
German Operations had been operating as an independent entity.
(continued)
F-6
The Product Lines and Operations of
Doduco GmbH + Co Dr. Eugen Durrwachter and Subsidiary
Acquired by Technitrol
Notes to the Consolidated Financial Statements
Subsequent Event, Bankruptcy Filing--Doduco Germany experienced significant
financial difficulty for a number of years and entered into bankruptcy during
June 1996 and Receivership in August 1996. The Assets of Doduco Germany which
were acquired by Technitrol were acquired from a Receiver and, prior to
Technitrol's purchase of those assets, other isolated assets and product lines
of Doduco Germany were sold or abandoned by Doduco Germany or the Receiver.
The accompanying consolidated financial statements of the Acquired Operations
do not represent the financial statements of Doduco Germany and, accordingly,
do not include any of the effects of such bankruptcy filing.
Foreign Currencies--For purposes of these consolidated financial statements,
the U.S. Dollar has been used as the reporting currency. The Net Assets of
the Acquired Operations have been translated into U.S. Dollars on the basis of
period end exchange rates while the statements of revenues and expenses and
cash flows have been translated using average exchange rates during the
periods presented.
Inventory Valuation--Inventory has been valued at the lower of cost or
market, cost being determined on the basis of an average or first-in, first-
out method. Manufacturing costs comprise direct material and labor and
applicable manufacturing overheads, including depreciation charges.
Property, Plant and Equipment--Property, plant and equipment has been valued
at acquisition or manufacturing cost, less depreciation over the assets'
useful lives, principally as follows: buildings - 10 to 50 years; site
improvements - 10 years; technical installations and machinery - 5 to 8
years; and other factory and office equipment - 5 to 10 years.
Principally accelerated depreciation methods are applied to assets acquired
before 1995, while the straight-line method is applied to assets newly
acquired in 1995. The effect of this change in accounting by the German
Operations for the year ended December 31, 1995 was a reduction of
depreciation expense and reduction of the net loss of approximately $500,000.
Revenue Recognition--Revenue is recognized when title passes or services are
rendered, net of discounts, customer bonuses and rebates granted.
Pension Expense--The Acquired German Operations' employees participated
in the Doduco defined benefit pension plan. Separate actuarial valuations with
respect to the Acquired German Operations' position in such defined benefit
pension plan are not available. The accompanying consolidated statements of
revenues and expenses include $1,383,000 and $4,265,000 in 1995 and 1994,
respectively, of amounts charged to the Acquired Operations for its
participation in the Doduco defined benefit pension plan. Technitrol did not
assume any obligations with respect to pension benefits under Doduco's
pension plan.
Employee Termination Expense--During November 1995, agreement was reached
with the Workers' Council on a compensation package for the termination of
approximately 300 persons employed in the Acquired German Operations. The
cost of this decision and related agreement amounted to approximately
$4,150,000 and is included in the accompanying 1995 consolidated statement of
revenues and expenses under general and administrative expenses.
(continued)
F-7
The Product Lines and Operations of
Doduco GmbH + Co Dr. Eugen Durrwachter and Subsidiary
Acquired by Technitrol
Notes to the Consolidated Financial Statements
Interest Expense--Interest expense of Doduco Germany has been allocated based
on the relationship of capital employed by the Acquired German Operations
and total capital employed by Doduco Germany. Technitrol did not assume
any obligations with respect to debt of Doduco Germany.
Taxation--The Acquired German Operations represent product lines and
operations of Doduco Germany and as such did not file separate income tax
returns. The income tax provisions for the German Operations included in the
accompanying consolidated statements of revenues and expenses have been
computed as-if the Acquired German Operations were a separate company.
Technitrol did not purchase the tax benefits associated with loss
carryforwards or assume any obligations with respect to tax liabilities of
Doduco Germany. The Spanish Operations represented a separate taxable
entity for all periods presented.
Cash and Cash Equivalents--Cash and cash equivalents represents cash and
highly liquid certificates of deposit and investments with original
maturities of three-months or less.
Use of estimates--The preparation of financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent amounts at the date of the
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Inventories
At December 31,
1995 1994
------------------------------
Raw materials and manufacturing supplies $10,170,504 8,069,678
Work in progress........................ 9,209,396 9,338,131
Precious metals, finished goods, parts
and goods purchased for resale........ 15,203,159 18,928,421
----------- ----------
$34,583,059 36,336,230
=========== ==========
In connection with the production of inventories, the Acquired German
Operations maintain precious metal "lease" agreements. In accordance with
these lease agreements, title to the precious metal remains with the lessors
until used by the Aquired German Operations. The spot market value of precious
metals held under these agreements amounted to $10.7 million and $9.2
million at December 31, 1995 and 1994, respectively, including $7.7 million
and $6.6 million, respectively, relating to silver, and $2.7 million and
$2.6 million, respectively, relating to gold. These precious metals are not
included in inventory, and there is no related liability recognized.
The lessors generally have a security interest in any products their precious
metal has entered into, including in receivables arising upon sale of such
products.
Included in interest expense for the years 1995 and 1994 are "leasing" fees
of $365,288 and $257,966, respectively, based on various percentage rates of
the value of these leased precious metals throughout the year. At December
31, 1995, the fee rates ranged from 1.55 percent to 7.40 percent; the
weighted average of all rates on that date was 4.17 percent. The terms are
re-negotiated periodically ranging from monthly to yearly.
In addition, the Acquired German Operations processes precious metals for
customers. The spot market value of these precious metals held by the Acquired
German Operations at December 31, 1995 and 1994, amounted to $5.2 million and
$2.5 million, respectively. These precious metals are not included in
inventory, and there is no related liabiliy recognized.
3. Property, Plant and Equipment
At December 31,
1995 1994
-----------------------------
Cost:
Land.................................. $ 2,824,256 2,611,663
Buildings............................. 45,354,095 41,933,132
Site improvements..................... 1,679,129 1,553,537
Technical installations and machinery. 65,756,622 57,952,559
Other factory and office equipment.... 40,651,703 37,330,179
----------- -----------
156,265,805 141,381,070
Construction in progress.............. 249,101 445,112
----------- -----------
156,514,906 141,826,182
Accumulated depreciation................ 112,447,863 100,864,983
----------- -----------
$44,067,043 40,961,199
=========== ===========
(continued)
F-8
The Product Lines and Operations of
Doduco GmbH + Co Dr. Eugen Durrwachter and Subsidiary
Acquired by Technitrol
Notes to the Consolidated Financial Statements
The cost of other factory and office equipment includes assets capitalized
under capital lease arrangements of $456,533 and $394,752 at December 31,
1995 and 1994, respectively; accumulated amortization amounted to $44,984 and
$42,576, respectively.
Depreciation expense, including amortization on assets under capital lease
arrangements, charged in the statements of revenues and expenses was
$6,020,732 in 1995 and $5,892,752 in 1994.
4. Debt
All debt relates to the Spanish Operations as follows:
Current bank loans represent borrowings under short-term non-cancellable
credit and discount lines, of which approximately $760,000 were unused at
December 31, 1995.
At December 31, 1995, long-term debt includes principally a bank loan of
$3,801,685, bearing interest at 11.0 percent, repayable in fourteen equal
semi-annual instalments from August 1996 through February 2003. The loan
is secured by a mortgage conveyance on a building.
At December 31, 1995, aggregate amounts of long-term debt that mature during
the next five years and thereafter are as follows: 1996 (current portion) -
$326,135; 1997 - $607,321; 1998 - $604,829; 1999 - $591,797; 2000 - $545,459;
and thereafter - $1,347,121.
Capital lease liabilities at December 31, 1995, are due as follows:
Lease payments:
1996 ................................... $194,646
1997 ................................... 163,280
1998 ................................... 86,913
1999 ................................... 770
--------
445,609
Less amount representing interest ........ 146,234
--------
$299,375
========
Other long-term liabilities relate to machinery purchases; $182,646 mature in
1997 and $179,464 in 1998. They are secured on the machinery acquired.
5. Other Current Liabilities
At December 31,
1995 1994
-----------------------------
Other current liabilities
Accrued payroll and employee benefits.... $1,089,934 3,020,358
Payroll withholdings and sales taxes..... 149,084 93,931
All other................................ 114,068 13,858
---------- ---------
$1,353,086 3,128,147
========== =========
6. Income Taxes
Income (loss) before income taxes is attributable to the following geographic
locations:
Year Ended December 31,
1995 1994
--------------------------
Germany.................................... $(12,033,792) (10,569,137)
Spain...................................... 716,727 237,201
------------ -----------
$(11,317,065) (10,331,936)
============ ===========
The Acquired German Operations have not received any income tax benefit for
its losses, due to the overall loss carryforward position of Duduco. No
income tax charge has arisen in Spain, because of the utilization of
available tax loss carryforwards. A deferred tax asset had not been recorded
by the Spanish Operations, as there is continuing doubt about the Spanish
Operations' ability to realize sufficient taxable profits within the
carryforward period.
German corporate tax law applies the imputation system with regard to the
taxation of the income of a corporation and its stockholders. Upon
distribution of retained earnings in the form of a dividend, stockholders are
entitled to a tax credit in the amount of federal income taxes (presently
30 percent) previously paid by the corporation.
In general, retained corporate income is initially subject to a federal
corporaiton tax of 45 percent plus a surcharge of 7.5 percent on the federal
corporate tax rate. After giving effect to the surcharge, the federal
corporate tax rate increases to 48.375 percent.
Upon distribution of retained earnings to stockholders, the corporate income
tax rate on the distributed earnings is adjusted to 30 percent by receiving
a refund for taxes previously paid in excess of 30 percent. This refund is
passed on to the stockholders through a gross up of the dividend from the
corporation.
A reconciliation of income taxes determined using the German federal
statutory rate of 48.375 percent plus the after federal tax benefit rate
for trade taxes of 8.625 percent for a combined statutory rate of 57
percent is as follows:
(continued)
F-9
The Product Lines and Operations of
Doduco GmbH + Co Dr. Eugen Durrwachter and Subsidiary
Acquired by Technitrol
Notes to the Consolidated Financial Statements
Year Ended December 31,
1995 1994
---------------------------
Expected income tax credit................. $6,450,726 5,889,204
Spanish tax rate differential.............. 157,680 52,184
Nondeductible expenses:
German long-term interest expense........ (327,698) (267,375)
Other.................................... (9,843) (17,191)
Net operating loss utilization Spain....... 260,698 100,211
German loss carryforward for which no
benefit was recognized.................... (6,531,563) (5,757,033)
---------- ----------
Actual provision for income taxes.......... $ 0 0
========== ==========
December 31,
1995 1994
---------------------------
Deferred tax assets relating to:
Capitalized leases, net of
related liabilities..................... $ 38,402 4,729
Tax loss carryforward expiring 1998...... 485,189 662,744
-------- -------
523,591 667,473
Valuation allowance........................ 523,591 667,473
-------- -------
Deferred tax (liability) asset per balance
sheet..................................... $ 0 0
======== =======
At December 31, 1995, the Spanish Operations had net operating loss ("NOLs")
carryforwards amounting to approximately $1.4 million. A full deferred tax
valuation allowance has been established against such NOLs. The ultimate
realization by the Spanish Operations of its NOL's is dependent upon the
generation of future taxable income in such jurisdiction. Management
believes it more likely than not that in the near future the Spanish
Operations will not realize the benefit of such net operating loss
carryforward.
(continued)
F-10
The Product Lines and Operations of
Doduco GmbH + Co Dr. Eugen Durrwachter and Subsidiary
Acquired by Technitrol
Notes to the Consolidated Financial Statements
7. Commitments and Contingencies
The total rentals under operating leases charged as an expense in the
statements of revenues and expenses amounted to $1,581,923 and $1,462,708
in the years ended December 31, 1995 and 1994, respectively. The future
minimum lease payments under capital and operating leases that have
initial or remaining terms in excess of one year at December 31, 1995
are as follows:
1996....................................... $372,798
1997....................................... 258,547
1998....................................... 53,487
1999....................................... 0
In addition, the Aquired German Operations are committed to enter into an
agreement for the rental of production space for a period of up to October
1997 at an annual cost of $139,580; the final term of this agreement is
still subject to negotiation.
At December 31, 1995, the Spanish Operations had provided guarantees to
financial institutions in favour of third parties in connection with a one-
year letter of credit amounting to $ 83,976.
Various legal actions, proceedings and claims are pending or may be
instituted or asserted in the future against the Acquired Operations,
including those arising out of alleged defects in products, governmental
regulations relating to safety, product warranties and environmental matters.
Litigation is subject to many uncertainties; the outcome of individual
litigated matters is not predictable with assurance; and it is reasonably
possible that some of the foregoing matters could be decided unfavorably to
the Acquired Operations. Although the amount of liability at December 31,
1995 with respect to these matters cannot be ascertained, management believes
that the resulting liability, if any, should not materially affect the
consoldated financial position of the Acquired Operations at December 31,
1995.
8. Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Fair values of financial
instruments have been determined with reference to available market
information. However, considerable management judgement is required in
interpreting market data to arrive at estimates of fair values.
The carrying amounts of the Spanish Operations' debt at December 31, 1995 and
1994, is estimated to approximate its fair value. The fair value of such
debt was estimated by discounting future cash flows using rates currently
(continued)
F-11
The Product Lines and Operations of
Doduco GmbH + Co Dr. Eugen Durrwachter and Subsidiary
Acquired by Technitrol
Notes to the Consolidated Financial Statements
available for similar debt of similar terms and maturities. The carrying
values of cash, receivables and accounts payable approximate fair values due
to the short-term maturities of these instruments.
9. Related Party Transactions
For the years ended December 31, 1995 and 1994 the German Operations
recognized sales revenues of $2.8 million and $2.9 million,
respectively, related to products sold to other entities related to Doduco
and purchased $2.6 million and $10.8 million, respectively, of products
from other entities related to Doduco. Interest expense includes $1.5 million
and $0.7 million, respectively, and interest income includes $0.3 million
and $0.3, respectively, from and to entities related to Doduco.
(continued)
F-12
The Product Lines and Operations of
Doduco GmbH + Co Dr. Eugen Durrwachter and Subsidiary
Acquired by Technitrol
Notes to the Consolidated Financial Statements
10. Geographic Segment Reporting
Adjustments
and
Germany Spain eliminations Consolidated
- --------------------------------------------------------------------------------
1995
Revenues (by operation):
To unconsolidated customers $165,716,857 10,798,409 176,515,266
Transfers between
geographic areas......... 5,788,089 3,274,129 (9,062,218) --
------------ ---------- ---------- -----------
Total revenues............... $171,504,946 14,072,538 (9,062,218) 176,515,266
============ ========== ========== ===========
Export sales from Germany.... $ 67,075,551
============
Net income (loss)............ $(12,033,792) 716,727 (11,317,065)
============ ========== ===========
Identifiable assets.......... $ 69,011,526 13,010,282 82,021,808
============ ========== ===========
1994
Revenues (by operation):
To unconsolidated customers $141,746,665 6,009,103 147,755,768
Transfers between
geographic areas......... 4,657,240 3,383,570 (8,040,810) --
------------ ---------- ---------- -----------
Total revenues............... $146,403,905 9,392,673 (8,040,810) 147,755,768
============ ========== =========== ===========
Export sales from Germany.... $ 56,869,802
============
Net income (loss)............ $(10,569,137) 237,201 (10,331,936)
============ ========== ===========
Identifiable assets.......... $ 71,333,381 7,915,894 79,249,275
============ ========== ===========
F-13