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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 October 1, 1999, 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 incorporation (IRS Employer Identification
or organization) 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 October 25, 1999: 16,234,945
Page 1 of 30
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Technitrol, Inc. and Subsidiaries
Consolidated Balance Sheets
October 1, 1999 and December 31, 1998
In thousands
Oct. 1, Dec. 31,
Assets 1999 1998
------ ---- ----
(unaudited)
Current assets:
Cash and cash equivalents $ 64,483 $ 50,563
Trade receivables 85,507 71,482
Inventories 64,548 71,230
Prepaid expenses and other current assets 9,457 10,597
-------- --------
Total current assets 223,995 203,872
Property, plant and equipment 148,836 149,035
Less accumulated depreciation 67,781 59,967
-------- --------
Net property, plant and equipment 81,055 89,068
Deferred income taxes 8,463 9,296
Excess of cost over net assets acquired, net 39,127 39,249
Other assets 1,714 2,649
-------- --------
$354,354 $344,134
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 166 $ 193
Accounts payable 24,983 23,270
Accrued expenses 69,254 78,073
-------- --------
Total current liabilities 94,403 101,536
Long-term liabilities:
Long-term debt, excluding current installments 50,677 60,705
Other long-term liabilities 6,343 7,084
Shareholders' equity:
Common stock and additional paid-in capital 47,190 45,109
Retained earnings 159,293 131,227
Other (3,552) (1,527)
-------- --------
Total shareholders' equity 202,931 174,809
-------- --------
$354,354 $344,134
======== ========
See accompanying Notes to Consolidated Financial Statements.
Page 2 of 30
Technitrol, Inc. and Subsidiaries
Consolidated Statements of Earnings
(Unaudited)
In thousands, except per share data
Three Months Ended Nine Months Ended
Oct. 1, Sept. 30, Oct. 1, Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
Net sales $137,032 $113,349 $390,119 $328,985
Costs and expenses applicable to sales:
Cost of goods sold 92,980 78,403 267,900 224,738
Selling, general and administrative expenses 27,668 22,848 79,157 63,244
-------- -------- -------- --------
Total costs and expenses applicable to
sales 120,648 101,251 347,057 287,982
-------- -------- -------- --------
Operating profit 16,384 12,098 43,062 41,003
Other income (expense):
Interest, net (338) (341) (1,517) (696)
Other 73 (322) (177) (106)
-------- -------- -------- --------
Total other income (expense) (265) (663) (1,694) (802)
-------- -------- -------- --------
Earnings before income taxes 16,119 11,435 41,368 40,201
Income taxes 3,901 3,993 10,139 14,968
-------- -------- -------- --------
Net earnings $ 12,218 $ 7,442 $ 31,229 $ 25,233
======== ======== ======== ========
Net earnings per share:
Basic $ .76 $ .47 $ 1.95 $ 1.58
Diluted $ .75 $ .46 $ 1.92 $ 1.56
Dividends declared per share $ .0675 $ .06 $ .195 $ .18
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
Page 3 of 30
Technitrol, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
In thousands
Nine Months Ended
Oct. 1, Sept. 30,
1999 1998
---- ----
Cash flows from operating activities:
Net earnings $31,229 $25,233
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 14,373 13,289
Changes in assets and liabilities, net of effect
of acquisitions:
Trade receivables (15,801) (5,083)
Inventories 4,943 (3,190)
Accounts payable and accrued expenses (5,128) 5,239
Other, net 6,941 21
------- -------
Net cash provided by operating activities 36,557 35,509
------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired (994) (16,816)
Capital expenditures (13,235) (13,565)
Proceeds from sale of property, plant and equipment 1,913 --
------- -------
Net cash used in investing activities (12,316) (30,381)
------- -------
Cash flows from financing activities:
Dividends paid (3,037) (2,788)
Proceeds of long-term borrowings 46,159 5,890
Principal payments of long-term debt (53,057) (16,042)
Proceeds from exercise of stock options -- 97
------- --
Net cash used in financing activities (9,935) (12,843)
------- -------
Net effect of exchange rate changes on cash (386) 666
------- -------
Net increase (decrease) in cash and cash equivalents 13,920 (7,049)
Cash and cash equivalents at beginning of year 50,563 48,803
------- -------
Cash and cash equivalents at October 1, 1999 and
September 30, 1998 $64,483 $41,754
======= =======
See accompanying Notes to Consolidated Financial Statements.
Page 4 of 30
Technitrol, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
October 1, 1999
(Unaudited)
In thousands, except per share data
Other
-----------------------
Accumu-
Common stock and lated other
paid-in capital Deferred compre- Compre-
------------------ Retained compen- hensive hensive
Shares Amount earnings sation income income
------ ------ -------- ------ ------ ------
Balance at January 1, 1999 16,170 $45,109 $131,227 $(1,792) $ 265
Stock options, awards and related
compensation 64 1,782 (904)
Tax benefit of stock compensation 299
Currency translation adjustments (1,121) $(1,121)
Net earnings 31,229 31,229
-------
Comprehensive income $30,108
=======
Dividends declared ($.1950 per share) (3,163)
------ ------- -------- ------- ------
Balance at October 1, 1999 16,234 $47,190 $159,293 $(2,696) $ (856)
====== ======= ======== ======= ======
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
Page 5 of 30
Technitrol, Inc. and Subsidiaries
Notes to Unaudited 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 of Notes
to Consolidated Financial Statements included in the Company's Form 10-K filed
for the year ended December 31, 1998.
The results for the nine months ended October 1, 1999 and September 30,
1998, have been prepared by Technitrol's management without audit by its
independent auditors. In the opinion of management, the financial statements
fairly present in all material respects the results of Technitrol's operations
and the financial position for the periods presented. To the best knowledge and
belief of Technitrol, all adjustments have been made to properly reflect income
and expenses attributable to the periods presented. All such adjustments are of
a normal recurring nature. Operating results for the nine months ended October
1, 1999 are not necessarily indicative of annual results.
(2) Acquisitions and Divestitures
-----------------------------
GTI Corporation ("GTI"): On November 16, 1998, the Company acquired all
------------------------
of the capital stock of GTI whose principal operating unit was Valor
Electronics, Inc. ("Valor"). Valor designed and manufactured magnetics-based
components for signal processing and power transfer functions used primarily in
local area networking and also in telecommunications and broadband products. At
the time of acquisition, manufacturing operations were located in the People's
Republic of China and the Philippines. The majority of these operations have
been integrated into existing facilities of the Company's Electronic Components
Segment. The remaining operations, not significant to the ECS, are expected to
be transferred by the end of 1999.
The total purchase price included $34.0 million paid to the former
shareholders of GTI. In addition, transaction expenses and related acquisition
costs were incurred. To complete the acquisition, the Company used approximately
$14.0 million of cash on hand, and drew down approximately $20.0 million from
previously unused bank lines of credit.
(continued)
Page 6 of 30
Technitrol, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(2) Acquisitions and Divestitures, continued
-----------------------------
The acquisition was accounted for by the purchase method of accounting
and, as such, the financial results of Valor have been included with those of
the Company beginning on November 16, 1998. A preliminary allocation of purchase
price to the assets acquired and liabilities assumed has been made using
estimated fair values that include values based on independent appraisals and
management estimates. The estimated fair value of the assets acquired and
liabilities assumed approximated $46.2 million and $18.3 million, respectively.
The excess of costs over net assets acquired approximated $5.8 million. These
estimates reflect adjustments made through October 1, 1999 and final adjustments
are expected to be made in the fourth quarter of 1999 to reflect actual amounts.
Adjustments during the fourth quarter of 1999 are not expected to have a
material impact on the Company's financial position.
The estimate of liabilities assumed included approximately $2.8 million
for restructuring the GTI businesses. The amount was established in accordance
with Emerging Issues Task Force Issue 95-3, "Recognition of Liabilities in
Connection with a Purchase Business Combination", and is intended to cover the
estimated expenses related to integrating GTI's operations into existing
Electronic Components Segment facilities. Expenses have been, and are expected
to be, incurred primarily for terminating employees, leasehold terminations and
other related exit costs. Actual expenses charged to the reserve through October
1, 1999 approximate $1.8 million. The Company is continuing to evaluate the
total cost required to complete the planned restructuring. Restructuring plans
are expected to be finalized during the fourth quarter of 1999.
GTI experienced significant financial difficulty prior to its
acquisition by the Company, and the Company is making significant changes to
GTI's businesses, as noted above. As a result, the Company does not believe that
the following unaudited pro forma financial information, which reflects
continuing operations only and assumes GTI was acquired on January 1, 1998, 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 (in thousands, except for earnings per share).
Nine Months Ended
Sept. 30, 1998
--------------
Net sales $363,451
Net earnings $10,917
Diluted earnings per share $.67
(continued)
Page 7 of 30
Technitrol, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(2) Acquisitions and Divestitures, continued
----------------------------------------
FEE Technology, S.A. ("FEE"): On July 3, 1998, the Company purchased
-----------------------------
all of the capital stock of FEE. FEE designed and manufactured magnetic
components for telecommunications and power conversion equipment. FEE is now
part of the Electronic Components Segment.
The total purchase price including assumed debt was approximately $17.0
million and was funded by cash on hand. In addition, transaction expenses and
related acquisition costs were incurred. The approximate fair value of the net
assets acquired was $8.3 million resulting in goodwill of approximately $8.7
million. The fair value of liabilities assumed included approximately $1.7
million for restructuring the FEE businesses, of which approximately $.9 million
remains as of October 1, 1999. The remaining amounts are primarily for severance
payments and other related exit costs resulting from closing factories. The
amounts disclosed above include adjustments made during 1999 to reflect the
final allocation of the purchase price to the fair market value of assets
acquired and liabilities assumed.
The acquisition was accounted for by the purchase method of accounting
and, therefore, the financial results of FEE have been included with those of
the Company beginning on July 3, 1998. Historical pro forma results of
operations would not be materially different from actual results.
Certain Assets of Metales y Contactos, S.A. de C.V. ("Metales"): On
----------------------------------------------------------------
July 3, 1998, the Company, through its Metallurgical Components Segment ("MCS"),
acquired certain assets of Metales. The purchase price of Metales' assets was
not material to the Company's consolidated financial position. The results of
the Metallurgical Components Segment include the results of operating the
acquired assets from July 3, 1998.
(3) Inventories
-----------
Inventories consisted of the following (in thousands):
October 1, December 31,
1999 1998
---- ----
Finished goods $23,542 $27,376
Work in process 14,484 14,926
Raw materials and supplies 26,522 28,928
------- -------
$64,548 $71,230
======= =======
Page 8 of 30
Technitrol, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(4) Derivatives and Other Financial Instruments
-------------------------------------------
The Company utilizes derivative financial instruments, primarily
forward exchange contracts and currency options, to manage foreign currency
risks. While these hedging instruments are subject to fluctuations in value,
such fluctuations are generally offset by the value of the underlying exposures
being hedged.
At October 1, 1999, the Company did not have any financial derivative
instruments outstanding. In addition, management believes that there is no
material risk of loss from changes in market rates or prices which are inherent
in other financial instruments.
(5) Earnings Per Share
------------------
Basic earnings per share are calculated by dividing earnings by the
weighted average number of common shares outstanding (excluding restricted
shares) during the period. For calculating diluted earnings per share, common
share equivalents and restricted stock outstanding are added to the weighted
average number of common shares outstanding. Common share equivalents result
from outstanding options to purchase common stock as calculated using the
treasury stock method. Such common share equivalent amounts were 36,400 and
34,100 for the three months ended October 1, 1999 and September 30, 1998,
respectively, and 35,100 and 36,100 for the nine-month periods then ended.
Earnings per share calculations are as follows (in thousands, except per share
amounts):
Three Months Ended Nine Months Ended
Oct. 1, Sept. 30, Oct. 1, Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
Net earnings $12,218 $ 7,442 $31,229 $25,233
Basic earnings per share:
Shares 16,056 15,996 16,043 15,979
Per share amount $ .76 $ .47 $ 1.95 $ 1.58
Diluted earnings per share:
Shares 16,252 16,216 16,236 16,201
Per share amount $ .75 $ .46 $ 1.92 $ 1.56
Page 9 of 30
Technitrol, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(6) Business Segment Information
----------------------------
For the nine months ended October 1, 1999, there was an immaterial
amount of intersegment revenues eliminated in consolidation. There were no
intersegment revenues in the nine months ended September 30, 1998. There has not
been a material change in segment assets from December 31, 1998 to October 1,
1999. In addition, the basis for determining segment financial information has
not changed from 1998. Specific segment data are as follows:
Three Months Ended Nine Months Ended
Oct. 1, Sept. 30, Oct. 1, Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
Net sales:
Electronic Components $ 80,582 $ 57,150 $221,047 $153,443
Metallurgical Components 56,450 56,199 169,072 175,542
-------- -------- -------- --------
Total $137,032 $113,349 $390,119 $328,985
======== ======== ======== ========
Earnings before income taxes:
Electronic Components $ 13,789 $ 9,075 $ 34,251 $ 28,031
Metallurgical Components 2,595 3,023 8,811 12,972
-------- -------- -------- --------
Operating profit 16,384 12,098 43,062 41,003
Other income (expense), net (265) (663) (1,694) (802)
-------- -------- -------- --------
Earnings before income taxes $ 16,119 $ 11,435 $ 41,368 $ 40,201
======== ======== ======== ========
Page 10 of 30
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion and analysis of our financial condition and results of
operations, as well as other sections of this report, contain certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results could differ materially. Please
refer to pages 24 through 27 of this report for a description of "forward-
looking statements" and factors that may affect future results.
Business Overview
Technitrol, Inc. is a global manufacturer of electronic and
metallurgical components. We operate two business segments: the Electronic
Components Segment and the Metallurgical Components Segment. We refer to these
segments as the ECS and the MCS.
Electronic Components Segment
The ECS provides a variety of magnetics-based components, miniature
chip inductors and modules. These components modify or filter electrical
signals. They are used primarily in local area network, Internet connectivity,
telecommunications and power-conversion products. We manufacture these products
in the United States, Ireland, France, Malaysia, Thailand, the Philippines and
the People's Republic of China. We sometimes refer to the People's Republic of
China as the PRC.
Our strategy is to expand our electronic components business through a
combination of internal growth and the acquisition of companies in the
electronic components business. Acquisitions during the last several years
include:
o Pulse Engineering, Inc. - In 1995, we acquired Pulse Engineering,
Inc., with manufacturing locations in Ireland and China. The
addition of Pulse significantly increased the size of our ECS
business.
o The magnetic components business of Northern Telecom, Ltd. - We
completed this acquisition on November 30, 1997. The primary
assets we purchased included manufacturing plants in Malaysia and
Thailand and a design-engineering group in Canada. These assets
primarily serve the telecommunications and power markets.
o FEE Technology, S.A. - We purchased FEE on July 3, 1998. FEE
designed and manufactured magnetic components for
telecommunications and power conversion equipment. With the
purchase of FEE, we acquired manufacturing facilities in France,
Thailand and Poland. We subsequently closed FEE's Thailand
facility and are in the process of closing the facility in Poland.
Page 11 of 30
o GTI Corporation - We completed the acquisition of GTI and its
subsidiary, Valor Electronics, in November 1998. Valor designed
and manufactured magnetics-based components for signal processing
and power transfer functions primarily for local area network
products and, to a much lesser extent, telecommunication and
power-conversion products. Their manufacturing facilities were
located in the PRC and the Philippines. We closed Valor's
Philippine facility and we are in the process of consolidating
Valor's PRC facility into our facilities in the PRC.
Our electronic component businesses are consolidated to form a unified
business throughout the world. This unified business operates under the Pulse
name. As mentioned above, we are in varying stages of integrating our 1998
acquisitions into Pulse. We expect these integration efforts to be substantially
completed by the end of 1999.
Metallurgical Components Segment
The MCS manufactures:
o electrical contacts and assemblies;
o contact materials;
o thermostatic bimetals;
o clad metal products; and
o precision contact subassemblies often using our plastic molding
capabilities.
We sell these components to a wide range of industrial and consumer
product manufacturers. Our products are used in a variety of applications which
affect daily living including:
o residential, commercial and industrial circuit breakers;
o motor controls;
o switches and relays;
o wiring devices;
o temperature controls;
o appliances;
o automobiles;
o telecommunications products; and
o various other electrical products.
We also perform electroplating and metal refining services. Manufacturing occurs
in the United States, Germany, Spain, Puerto Rico and Mexico.
Page 12 of 30
In late 1996, we acquired the assets of Doduco GmbH to support our
strategy of increasing market share and international expansion of our
metallurgical businesses. This business, located in Germany and Spain, was then
combined with our existing metallurgical component operations in North America
and now operates globally under the name AMI Doduco.
In July 1998, we acquired certain assets of Metales y Contactos, S.A.
de C.V. Metales designed and manufactured precious and semi-precious metal
contacts used mainly in automobiles and other durable goods. The Metales
facilities are located near Mexico City.
Liquidity and Capital Resources
Working capital at October 1, 1999 was $129.6 million, approximately
$27.3 million more than working capital at December 31, 1998. Worldwide cash on
hand at October 1, 1999 was $64.5 million, approximately $13.9 million greater
than the December 31, 1998 amount. In 1999, cash provided by operations more
than offset cash used to purchase assets, pay dividends and repay outstanding
debt. At October 1, 1999, we had approximately $136.7 million of unused lines of
credit available to us.
We believe that the combination of cash on hand, cash generated by
operations and, if necessary, additional borrowings under our credit facilities
will be sufficient to satisfy our operating cash requirements for the
foreseeable future. In addition, we may use internally generated funds and
additional borrowings for acquisitions of suitable businesses or assets.
Cash Flows from Operating Activities
Cash provided by operating activities for the nine months ended October
1, 1999 was $36.6 million. Accounts receivable increased by $15.8 million during
the year as a result of the record level sales for the third quarter of 1999 in
the Electronic Components Segment. Inventory levels have decreased $4.9 million
as a result of the higher sales level, including shipments made from inventory,
and a continued effort to reduce inventory levels while maintaining or improving
customer service. Accounts payable and accrued expenses decreased due to
payments for income taxes, salaries and employment-related benefits, and
restructuring efforts on recently acquired businesses. Other items contributing
to cash provided by operating activities include a decrease in net deferred tax
assets and decreases in other miscellaneous assets.
Cash Flows from Investing Activities
Cash used by investing activities was $12.3 million during the first
nine months of 1999, substantially all of which was used for capital
expenditures, net of proceeds from the sale of property, plant and equipment.
Page 13 of 30
We make capital expenditures to expand production capacity and to
improve our operating efficiency. We plan to continue making such expenditures.
Additionally, we may acquire other businesses or product lines to expand our
breadth and scope of operations.
With the exception of approximately $6.2 million of retained earnings
in the PRC which are restricted in accordance with PRC regulations,
substantially all retained earnings are free from legal or contractual
restrictions. We have not experienced any significant liquidity restrictions in
any country in which we operate and none are foreseen. However, foreign exchange
ceilings imposed by local governments and the sometimes lengthy approval
processes which some foreign governments require for international cash
transfers may delay our internal cash movements from time to time. The retained
earnings in other countries represent a material portion of our assets. We
expect to reinvest these earnings outside of the United States because we
anticipate that a significant portion of our opportunities for growth in the
coming years will be abroad. If such earnings were brought back to the United
States, significant tax liabilities could be incurred in the United States. This
could have a material unfavorable impact on our net income and cash position.
Cash Flows from Financing Activities
We repaid, net of additional borrowings, $6.9 million of debt through
October 1, 1999. We paid dividends of approximately $3.0 million during the
first nine months of 1999. We expect to continue paying quarterly dividends for
the foreseeable future.
Foreign Currency Effects
During the first nine months of 1999, the Euro devalued approximately
8% relative to the U.S. dollar. As a result, we incurred foreign currency losses
at our ECS European operations during the first nine months of 1999, as Euro
denominated assets and liabilities were translated to U.S. dollars for financial
reporting purposes. In addition, we experienced a negative translation
adjustment to equity as our investment in the MCS's European operations is worth
less in U.S. dollars than it was prior to the downward valuation of the Euro.
This decrease in U.S. dollar value resulted in a reduction to equity.
We transact a significant amount of sales in currencies other than the
U.S. dollar. Therefore, changing exchange rates often impact our financial
results. This is particularly true of movements in the exchange rate between the
U.S. dollar and the Euro currencies, in which AMI Doduco's European sales are
primarily denominated. During the first nine months of 1999, the devaluation of
the Euro relative to the dollar negatively impacted the sales and profits of AMI
Doduco. In the future, it is possible that an increasing percentage of our sales
will be denominated in non-U.S. currencies. This would increase our earnings
exposure to currency fluctuations.
Page 14 of 30
In order to reduce our exposure resulting from currency fluctuations,
we may purchase currency exchange forward contracts and/or currency options.
These contracts guarantee a predetermined range of exchange rates at the time
the contract is purchased. This allows us to shift the majority of the risk of
currency fluctuations from the date of the contract to a third party for a fee.
In determining the use of forward exchange contracts and currency options, we
consider the amount of sales and purchases made in local currencies, the type of
currency, and the costs associated with the contracts. At October 1, 1999, we
did not have any financial derivative instruments outstanding.
New Accounting Pronouncements
In June of 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities.
Statement 133 is effective for all fiscal quarters for fiscal years beginning
after June 15, 2000. Adoption of this standard is not expected to have a
material effect on our operating results or liquidity. The impact of this
standard on our balance sheet will depend on the amount of hedging activity
outstanding on the date of adoption.
Results of Operations
Our results of operations for the three and nine month periods ending
October 1, 1999 and September 30, 1998 are as follows. Amounts are in thousands:
Three Months Ended Nine Months Ended
Oct. 1, Sept. 30, Oct. 1, Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
Net sales:
Electronic Components $ 80,582 $ 57,150 $221,047 $153,443
Metallurgical Components 56,450 56,199 169,072 175,542
-------- -------- -------- --------
Total $137,032 $113,349 $390,119 $328,985
======== ======== ======== ========
Earnings before income taxes:
Electronic Components $ 13,789 $ 9,075 $ 34,251 $ 28,031
Metallurgical Components 2,595 3,023 8,811 12,972
-------- -------- -------- --------
Operating profit 16,384 12,098 43,062 41,003
Other income (expense), net (265) (663) ( 1,694) (802)
-------- -------- -------- --------
Earnings before income taxes $ 16,119 $ 11,435 $ 41,368 $ 40,201
======== ======== ======== ========
Page 15 of 30
Revenues
Net sales for the quarter ended October 1, 1999 increased by $23.7
million, or 20.9%, when compared to the prior year third quarter. Net sales for
the first nine months of 1999 increased by $61.1 million, or 18.6%, from the
comparable 1998 period. The increase was due to record level ECS sales.
The ECS sales in the third quarter of 1999 increased by $23.4 million,
or 41.0%, from the third quarter of 1998. The ECS year-to-date sales increased
by $67.6 million, or 44.1% from the comparable 1998 period. Both the quarterly
and the year-to-date comparisons were positively impacted by strong demand for
electronic components and the contributions from the GTI/Valor Electronics, Inc.
business acquired on November 16, 1998. The year-to-date 1999 sales amount also
includes nine months of contributions from FEE Technology, S.A., acquired on
July 3, 1998. Sales were strong in the ECS's three primary markets - LAN,
telecommunications and power markets.
Sales for the MCS in the third quarter of 1999 increased slightly in
comparison to the third quarter of 1998 in spite of a weaker Deutsche mark in
comparison to the U.S. dollar. The MCS 1999 year-to-date sales decreased by $6.5
million, or 3.7%, from the first nine months of 1998. The MCS sales for the
first nine months of 1999 were adversely affected by weakness in the European
economies in general, particularly Germany and France. Our sales were lower
across all markets we serve in Europe, except for sales into the automotive
industry. The MCS sales for the first nine months were also negatively impacted
by a weaker Deutsche mark relative to the U.S. dollar when compared to the first
nine months of 1998. Offsetting these negative sales factors, orders from
European manufacturers of industrial machinery, appliances and power generation
equipment began to rebound in the latter part of the third quarter as European
exports to Asia showed signs of recovery. It is too early to predict whether
this trend will be sustained. Also, market conditions in North America remained
relatively strong in the third quarter of 1999.
Cost of Sales
During the third quarter of 1999, our gross margin was 32.1%, compared
to 30.8% during the third quarter of 1998. The gross margin for the first nine
months of 1999 was 31.3% compared with 31.7% for the nine month period ended
September 30, 1998. Although the gross margin for both the ECS and the MCS were
somewhat lower when compared to the prior year, on a consolidated basis the
margin was higher in the third quarter of 1999 as compared to the same period in
1998 as we realized proportionately more higher-margin ECS sales than MCS sales
in the third quarter of 1999.
Page 16 of 30
There were a variety of factors contributing to the decline in gross
margin for the nine months ended October 1, 1999. For the ECS, the primary
factors were:
o the addition of the FEE and Valor businesses which historically
have operated at somewhat lower margins than the traditional Pulse
businesses;
o expenses related to the integration efforts of FEE and Valor,
including the relocation and consolidation of certain production
operations, severances and related expenses (these expenses had
minimal impact on the ECS in the third quarter); and
o continuing pricing pressures from ECS customers.
These factors were partially offset in the third quarter of 1999 by volume
efficiencies, favorable product mix and the positive impact of cost control
programs instituted in the first quarter of 1999.
Consistent with the second quarter of 1999, the year-to-date MCS gross
margins have been negatively affected by weakness in the European markets as our
fixed costs were allocated over less volume. Margins have been further affected
by less favorable product mix. Our cost reduction efforts continue in both the
manufacturing and administrative areas although incremental spending has
occurred in selected areas we believe are vital to continued long-term success.
Operating Expenses
Total selling, general and administrative expenses as a percentage of
sales for the quarter ended October 1, 1999 remained consistent with the
comparable quarter of 1998. On a year-to-date basis, selling, general and
administrative expenses were 20.3% of net sales as compared to 19.2% for the
first nine months of 1998. Although third quarter expenses were positively
impacted by our cost-control programs and the sales volume attained by the ECS,
selling, general and administrative expenses remained consistent, as a
percentage of sales, with 1998 as the MCS incurred business development expenses
related to the evaluation of prospective acquisitions, a one-time expense
related to a real estate lease termination, non-recurring consulting expenses
and executive recruiting costs associated with the previously announced MCS
reorganization. The year-to-date comparisons were also negatively affected by:
o significant expenses, especially in the second quarter of 1999, incurred by
the MCS related to the installation of a worldwide enterprise resource
planning system; and
o expenses related to integrating FEE and Valor into existing ECS facilities.
Page 17 of 30
Research, development and engineering expenses are included in selling,
general and administrative expenses. We refer to research, development and
engineering expenses as RD&E. For the three and nine months ended October 1,
1999 and September 30, 1998, RD&E by segment was as follows:
Three Months Ended Nine Months Ended
Oct. 1, Sept. 30, Oct. 1, Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
RD&E:
Electronic Components $ 3,402 $ 2,982 $10,476 $ 8,084
% of Segment Sales 4.2% 5.2% 4.7% 5.3%
Metallurgical Components $ 1,410 $ 1,468 $ 4,394 $ 4,237
% of Segment Sales 2.5% 2.6% 2.6% 2.4%
Although the ECS spending in RD&E decreased as a percentage of sales,
the ECS spent more in total than in the prior year as the ECS continues to
invest in new technologies and related improvements to respond to technology
changes. Neither segment plans any significant reduction in RD&E efforts in the
near-term.
Interest
Net interest expense was approximately $.3 million during the third
quarter of 1999, consistent with the third quarter of 1998. For the first nine
months of 1999, net interest expense was approximately $1.5 million compared
with $.7 million in the comparable period of 1998. The increase in net interest
expense resulted primarily from higher levels of debt outstanding during the
first quarter 1999 as we used approximately $20.0 million of debt to finance our
acquisition of GTI/Valor on November 16, 1998.
The majority of our credit facilities have variable interest rates.
Accordingly, interest expense may increase if the rates associated with, or the
amounts borrowed under, our credit facilities move higher during subsequent
quarters. In addition, we may pursue additional or alternative credit to finance
further growth opportunities in one or both of our segments. We may use interest
rate swaps or other financial derivatives in order to manage the risk associated
with changes in market interest rates; however, we have not used any such
instruments thus far.
Page 18 of 30
Income Taxes
Our effective income tax rate in the third quarter of 1999 was 24.2%,
compared with 34.9% in the third quarter of 1998. The rate for the first nine
months of 1999 was 24.5%, compared with 37.2% for the same period of the prior
year. The substantial decrease in our effective tax rate resulted from actions
initiated in the first quarter of 1999 related to a comprehensive global review
of our business operations. This comprehensive review was aimed at ensuring that
our overall tax rates are optimal and appropriate. Also contributing to the
lower overall tax rate was a decline in the proportion of taxable income
attributable to high-tax jurisdictions such as Germany.
Other Issues
Precious Metal
The MCS uses silver, as well as other precious metals, in the
manufacturing of electrical contacts, rivets and other products. Historically,
we have leased or held these materials through consignment arrangements with our
suppliers. Leasing and consignment costs have been substantially below the costs
to borrow funds to purchase the metals. In addition, the risk of a decrease in
the market price of owned precious metal can be substantial. As is sometimes the
case, during the first quarter of 1998, and to a lesser extent in early 1999,
the price of silver increased significantly. The associated leasing costs also
increased. The terms of sale within the MCS allow us to charge customers for the
current market value of silver. However, leasing costs cannot always be freely
recovered. Thus far we have been successful in managing the costs associated
with our precious metals. While limited amounts are purchased for use in
production, the vast majority of our precious metal inventory continues to be
leased or held on consignment. If our leasing/consignment fees increase
significantly in a short period of time, and we are unable to recover these
increased costs through higher sale prices, a negative impact on our results of
operations and liquidity may result. We believe this risk is shared by all of
our competitors.
Year 2000 Computer Issues
General
The popularly called "Year 2000" issues associated with the programming
code in existing computer systems revolve around whether computer systems will
properly recognize date-sensitive information when the year changes to 2000.
Information technology ("IT") and non-IT systems that do not properly recognize
such information could generate erroneous data or cause a system to fail. The
Year 2000 problem is pervasive and complex, as virtually every computer
operation will be affected in some way by the rollover of the two digit
value to 00.
Page 19 of 30
Our IT systems include central business computing and ancillary
business computing systems, payroll systems and manufacturing systems. Our
non-IT systems, those with embedded technology such as microcontrollers, include
time reporting systems, alarm and security systems, telecommunication systems,
plant machinery controls and electronic data interfaces. We have analyzed the
impact of the Year 2000 issues on our systems and have, or are in the process
of, addressing the issues identified by our analysis.
Our products do not include date-sensitive software or embedded
technology. As a result, we do not expect to experience product warranty or
return issues relating to the Year 2000 problem.
State of Readiness
As a result of our decentralized segment structure and the diversified
systems employed by each segment and the corporate location, the Year 2000 issue
is being managed by each group separately. Oversight and status reviews are
performed by corporate personnel and, ultimately, the audit committee and board
of directors. We have defined the stages of progress for Year 2000 readiness as
follows: awareness, assessment, renovation, validation and implementation.
Corporate, the ECS and the MCS are generally in the implementation stage. Both
the ECS and MCS have assessed and are addressing Year 2000 issues related to
their 1998 acquisitions.
Corporate
The IT systems at our corporate location are primarily purchased
programs. Periodically, these programs are updated with new releases. As a
result of these updates and discussions with vendors, we believe that internal
IT systems used at the corporate location are Year 2000 ready in all material
respects.
We maintain electronic interfaces with external vendors, including
banks, insurance companies, employee benefit providers and many other parties.
In addition, we are dependent on parties such as our transfer agent and the New
York Stock Exchange to provide for uninterrupted trading of our securities.
Based on discussions with their personnel, we believe these highly regulated
institutions are or will be Year 2000 ready, although we have received no such
guarantees. We have requested Year 2000 readiness statements from these vendors.
In the event that these parties experience Year 2000 problems, the consequences
to us are unknown.
We believe that corporate non-IT systems are Year 2000 ready, although
the use of non-IT systems at the corporate level is not critical to our
operations.
Page 20 of 30
ECS
In mid-1997, the ECS formed a working group to address Year 2000 issues
facing this segment. All of the ECS's corporate applications were reviewed to
determine whether to repair, re-engineer, replace, or retire each system. All
recommended reprogramming steps to achieve Year 2000 readiness have been
completed. In addition, the ECS completed compliance implementations and related
testing for infrastructure-related issues with the operating systems, computer
networks, and telecommunications equipment and services, as well as the ECS's
facilities and security systems. To the extent problems develop, the ECS expects
that its IT department, with the assistance of external consultants, will be
able to address those problems on a timely basis.
Regarding the FEE acquisition, the ECS has completed an assessment of
Year 2000 issues related to FEE's IT and non-IT systems. The non-compliant
business system at FEE has been converted to the Year 2000 ready systems
headquartered in the San Diego offices. All integration testing and system
compliance issues have been resolved and the conversion completed. Non-IT
related systems have been assessed and certified as compliant.
Prior to our acquisition of GTI, GTI completed the installation of an
enterprise resource planning system which addressed GTI's Year 2000 issues
related to their information systems. Any potential Year 2000 issues related to
GTI's facilities or non-IT systems have been or will be addressed by our plans
to integrate GTI's operations into our facilities, which we believe are Year
2000 ready.
The ECS has contacted all major vendors and suppliers, including
hardware, software, telecommunications, networking, security, data and service
providers, regarding the Year 2000 readiness status of their companies and
products. To the extent that a supplier is not able to become Year 2000 ready,
alternative supply sources have been identified and contacted, and their Year
2000 readiness status verified. The ECS expects that its major vendors or
suppliers are Year 2000 ready.
Aggregate external costs incurred to address Year 2000 issues within
the ECS have approximated $520,000. About $440,000 of this amount was paid to
consultants and expensed when incurred. The remainder of the costs related to
accelerated purchases of licenses and software, and was capitalized in
accordance with existing company policy. Future costs related to the ECS Year
2000 issues are expected to be immaterial to the ECS.
Page 21 of 30
MCS
Motivated in part by the Year 2000 issue and issues related to the Euro
currency conversion, but more so by the need for managers to have access to
real-time business data, the MCS installed a worldwide enterprise resource
planning system. The system went "live" as planned in early April in Germany and
most of North America. The vendor has warranted that the software is Year 2000
ready.
The MCS is utilizing both internal and external resources to identify,
correct or reprogram and test remaining IT and non-IT systems for Year 2000
compliance, including those systems in Mexico acquired in July of 1998. It is
anticipated that all reprogramming efforts will be completed in a time period
sufficient to allow for appropriate testing.
A Year 2000 readiness review of manufacturing systems is also under
way. The MCS's manufacturing systems include furnace controls, computer
integrated manufacturing systems, shop floor data collection and test equipment.
Some of these systems include embedded systems. It is anticipated that any
material Year 2000 problems will be identified and corrected by December of 1999
without material expense.
Excluding the costs of implementing the ERP system, the total
incremental costs -- incurred and to be incurred -- associated with addressing
the Year 2000 issues within the MCS are estimated to be $150,000. Those costs
are being expensed as incurred. The cost of implementing the ERP system was
significant to us; however, such costs were budgeted and approved in the
ordinary course of business and were expensed or capitalized in accordance with
existing policy. While we expect that problems will develop from time to time
during the course of the ERP changeover, we do not believe that these problems
will have a material adverse effect on our operations or that they necessarily
will be Year 2000 related.
The MCS has formalized questionnaires and sent those to vendors
requesting information regarding Year 2000 readiness. In addition, the MCS
performed on-site audits of its top ten suppliers, all of which appear to be
Year 2000 ready. The MCS has received completed surveys from a number of its
suppliers. The identification of alternative supply sources is our intended
corrective action with regard to non-compliant suppliers.
Page 22 of 30
Contingency Plans
As the corporate location and the ECS believe their aggressive action
with respect to Year 2000 problems will mitigate material problems, overall
contingency plans have not been developed.
In the event that there is a failure of the ERP system, the MCS's
contingency plans include reverting to existing financial systems that are Year
2000 ready. Other financial and non-financial applications would be run manually
and problems would be addressed as identified.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. For example, if a utility company were unable to deliver power, or
if a major vendor were unable to deliver product, the operations of the affected
segment could be disrupted or even temporarily shut down. However, in each
segment, our manufacturing facilities and locations are more geographically
diverse than those of most of our competitors. This diversity provides a natural
hedge against those Year 2000 problems which may affect a given supplier or
utility. In the unlikely event that such failures occur, they could materially
and adversely affect our results of operations, liquidity and financial
condition. Due to the general uncertainty of the Year 2000 problem, including
the uncertainty of the Year 2000 readiness of third-party suppliers and
customers, we are unable to determine with complete certainty at this time
whether the consequences of Year 2000 failures will have a material impact on
our results of operations, liquidity or financial condition. Although there can
be no assurance that we have identified and corrected, or will identify and
correct, every Year 2000 problem existing in IT and non-IT systems, we believe
that we have programs in place to identify and correct any such material
problems and that our actions have significantly decreased the risks associated
with the Year 2000 problem.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the Euro. We refer to the 11 countries as the participating countries and
the participating countries' sovereign currencies as the legacy currencies. The
Euro now trades on currency exchanges and is available for non-cash
transactions.
Page 23 of 30
The legacy currencies are scheduled to remain legal tender in the
participating countries as denominations of the Euro between January 1, 1999 and
July 1, 2002. During this transition period, public and private parties may pay
for goods and services using either the Euro or a legacy currency. Beginning
January 1, 2002, the participating countries will issue new Euro-denominated
bills and coins for use in cash transactions. By July 1, 2002, the participating
countries will withdraw all bills and coins denominated in the legacy
currencies, so that the legacy currencies no longer will be legal tender for any
transactions. The conversion to the Euro will then be complete.
We have developed plans to ensure, to the extent possible, that the
Euro will not negatively impact our operations. As of October 1, 1999, no
significant problems have occurred. On a company-wide basis, those efforts have
been coordinated by the corporate Treasurer and have included internal personnel
as well as external consultants. The ECS is continually evaluating the impact of
the Euro on the operations located in Europe. The MCS is in the renovation and
implementation stages of addressing Euro conversion related system issues so
that optimal customer services relating to Euro transactions can be provided to
its European customers.
The failure to correct a material Euro conversion issue could result in
an interruption in, or failure of, certain normal business activities. Such
failures could materially and adversely affect our results of operations,
liquidity and financial condition. During 1999, we have not encountered any
material Euro conversion problems.
Factors That May Affect Our Future Results (Cautionary Statements for Purposes
of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act
of 1995)
Our disclosures and analysis in this report contain forward-looking
statements. Forward-looking statements give our current expectations of future
events. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They often (but not always) use words
such as "anticipate", "estimate", "expect", "project", "intend", "plan",
"believe", and similar terms. From time to time, we also provide oral or written
forward-looking statements in other materials we release to the public.
Any or all of our forward-looking statements in this report and in any
other public statements we make may turn out to be wrong. They may be affected
by inaccurate assumptions we might make or by risks and uncertainties which are
either unknown or not fully known or understood. Consequentially, no
forward-looking statement can be guaranteed. Actual future results may, and
probably will, vary materially.
We do not provide forecasts of future financial performance. We are
optimistic about our long-term prospects; however, the following issues and
uncertainties, among others, should be considered in evaluating our prospects
for the future.
Page 24 of 30
Some of Our Products Are Subject to Rapid Technological Changes.
The ECS operates in an industry known for rapid change, consolidation,
uncertainty and constant new and emerging technologies. Generally, we expect
product life cycles to be very short. Changes in recent years due to the
Internet, on-line services and expansion of networking require the ECS to
maintain a strong engineering and development program. The program is necessary
to avoid product obsolescence and to meet or exceed customer expectations.
Accordingly, we expect to continue to spend money on engineering and development
with no assurances that our efforts in these areas will continue to be
successful.
We Cannot Predict the Market Growth Rate for Our Products.
The ECS sells its products into markets that are characterized by
rapidly changing growth rates. These markets include LAN, telecommunication
devices and power-conversion products. It is often difficult for our customers
or us to assess worldwide demand for upgrades or replacement of networks, or the
pace at which telecommunication infrastructure will progress throughout the
world. The markets may counterbalance one another in terms of growth or they may
move in the same direction. All of this will impact ECS growth rates.
The growth rates of housing, construction, appliance, telecommunication
systems and auto sales, which are highly cyclical, will impact the revenue
growth of the MCS and the ECS. Recent developments in Europe and Asia typify
these issues.
We May Receive Lower Prices for Our Products.
Both the MCS and the ECS operate in businesses characterized by
continually declining average selling prices on existing products. Future prices
for our products may decrease from historical levels, depending on competition
and other factors, and we may not be able to bring our manufacturing costs down
proportionately or continue to introduce new products, each of which is
necessary to maintain average selling prices and profitability.
We May Not Be Able to Maintain Our Current Gross Margins as a
Percentage of Sales.
Cost of sales as a percentage of sales is different for each segment
and can vary greatly based on sales mix and method of distribution. Mix factors
may increase cost of sales as a percentage of sales in the future. Acquisitions
that we make may also reduce our gross margin percentages, temporarily or
permanently.
We May Not Be Able to Obtain Sufficient Quantities of Raw Materials.
If we cannot obtain sufficient quantities of raw materials, including
precious metals used by the MCS, or if the cost of those materials increases
significantly, and we cannot increase our selling prices, future operating
results could be much different from our expectations.
Page 25 of 30
We May Not Successfully Identify, Integrate, or Manage Acquisitions.
We have completed several acquisitions over the past several years. The
degree of success of these acquisitions depends on our ability to:
o successfully integrate or consolidate acquired operations into our existing
segments;
o identify and take advantage of cost reduction opportunities; and
o further penetrate the market for the products acquired.
Integration of acquisitions may take longer than expected and may never be
achieved to the extent originally anticipated. This could result in business
growth which may be less than anticipated or manufacturing costs which are
higher than anticipated. In addition, acquisitions may cause a disruption in our
ongoing business, distract our managers, unduly tax our other resources and make
it difficult or impossible to maintain our historical standards, procedures and
controls.
The timing, price, structure and success of all acquisitions are
uncertain. In addition, we may not be able to identify suitable acquisition
candidates at reasonable prices, thereby reducing the aggressive acquisition
component of our growth.
We Operate Internationally and in Developing Countries.
We have significant operations outside the United States. These
operations, like all international operations, are subject to a number of risks
including:
o currency fluctuations;
o capital and exchange control regulations;
o restrictive government actions; and
o expropriation and nationalization.
We believe that the risks in international operations are greatest in
developing countries. The ECS has significant manufacturing operations in
several developing countries, especially the People's Republic of China.
Although the PRC is one of the world's fastest growing economies, its potential
economic, political and labor developments provide uncertainties and risks.
While the PRC has been receptive to foreign investment, we can't be certain that
the current policies will continue indefinitely into the future. If any country
in which we have significant operations adopts economic, legal, or trading
policies harmful to private industry or foreign investment, such policies could
affect us significantly.
The unpredictability of economic forces and government policies in
foreign countries could cause changes to the favorable operating conditions we
have experienced in recent years. We continually monitor business conditions in
all of the regions where we operate.
Page 26 of 30
Effectively Managing Our Growth May Be Difficult.
We have grown rapidly in the last five years, and we expect to continue
to grow internally and through additional acquisitions. This growth is likely to
place significant strain on our resources and systems. To manage our growth, we
must implement systems, recruit and develop additional human resources and
control our operations by continually training employees at every level.
Other Factors
In addition to the factors discussed above, other factors which could
materially affect actual results include, but are not limited to:
o business conditions and the degree of optimism affecting the economies
throughout the world in general;
o competitive factors such as competitors seeking increased market share based
on price;
o manufacturing efficiencies and capacity;
o legal liability unknown at this time;
o risk of obsolescence due to shifts in market demand;
o Year 2000 issues related to our computer systems or the computer systems of
our suppliers or customers (please see pages 19 through 23 of this report);
and
o the timing of customer product introductions.
The company believes that it has the market opportunities, product
offerings, facilities, personnel and competitive and financial resources for
continued business success. However, future events, costs, margins, product mix
and profits are all subject to unpredictable factors including those discussed
above.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in market risk exposures that affect the
quantitative and qualitative disclosures presented in our Form 10-K for the year
ended December 31, 1998.
Page 27 of 30
Part II. Other Information
Item 1 Legal Proceedings None
Item 2 Changes in Securities and Use of Proceeds None
Item 3 Defaults Upon Senior Securities None
Item 4 Submission of Matters to a Vote of Security Holders None
Item 5 Other Information None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibit Index is on page 29.
(b) Reports On Form 8-K None
Page 28 of 30
Exhibit Index
Document
3.(i) Articles of Incorporation Incorporated by reference to Form 8-A/A
dated April 10, 1998
(ii) By-laws Incorporated by reference to Form 10/Q
for the quarter ended July 2, 1999
4. Instruments defining rights Incorporated by reference from Form 10-K
of security holders for the year ended December 31, 1995
and from Exhibit 4 of Form 8-K dated
August 30, 1996
10. Material Contracts Short Term Cash Incentive Plan attached
to this Form 10-Q
27. Financial Data Schedule Electronic Filing Only
- --------------------------------------------------------------------------------
Page 29 of 30
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)
November 12, 1999 /s/Albert Thorp, III
- -------------------------- -------------------------------------
(Date) Albert Thorp, III
Vice President - Finance and
Chief Financial Officer
(Principal Financial Officer)
November 12, 1999 /s/Drew A. Moyer
- -------------------------- -------------------------------------
(Date) Drew A. Moyer
Corporate Controller and Secretary
(Principal Accounting Officer)
Page 30 of 30