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0001169232-07-001090.txt : 20070227
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20070226194219
ACCESSION NUMBER: 0001169232-07-001090
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 11
CONFORMED PERIOD OF REPORT: 20061229
FILED AS OF DATE: 20070227
DATE AS OF CHANGE: 20070226
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: TECHNITROL INC
CENTRAL INDEX KEY: 0000096763
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679]
IRS NUMBER: 231292472
STATE OF INCORPORATION: PA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-05375
FILM NUMBER: 07650955
BUSINESS ADDRESS:
STREET 1: 1210 NORTHBROOK DR
STREET 2: SUITE 470
CITY: TREVOSE
STATE: PA
ZIP: 19053
BUSINESS PHONE: 2153552900
MAIL ADDRESS:
STREET 1: 1210 NORTHBROOK DR
STREET 2: STE 470
CITY: TREVOSE
STATE: PA
ZIP: 19053
10-K
1
d71020_10k.htm
AUNNAL REPORT
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UNITED STATES |
SECURITIES & EXCHANGE COMMISSION |
Washington, D. C. 20549 |
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FORM 10-K |
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x |
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 29, 2006 |
or |
o |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________ |
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Commission File No. 1-5375 |
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TECHNITROL, INC. |
(Exact name of registrant as specified in Charter) |
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PENNSYLVANIA |
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23-1292472 |
(State of Incorporation) |
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(IRS Employer Identification Number) |
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1210 Northbrook Drive, Suite 470, Trevose, Pennsylvania |
19053 |
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(Address of principal executive offices) |
(Zip Code) |
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Registrants telephone number, including area code: |
215-355-2900 |
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
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Name of each Exchange on which registered |
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Common Stock par value $0.125 per share
Common Stock Purchase Rights |
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New York Stock Exchange
New York Stock Exchange |
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act). Large accelerated filer x Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of voting stock held by non-affiliates as of June 30, 2006 is $934,320,000 computed by reference to the closing price on the New York Stock Exchange on such date. |
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Title of each class |
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Number of shares outstanding
February 26, 2007 |
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Common stock par value $0.125 per share |
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40,750,693 |
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DOCUMENTS INCORPORATED BY REFERENCE |
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Portions of the Registrants definitive proxy statement to be used in connection with the registrants 2007 Annual Shareholders Meeting are incorporated by reference into Part III of this Form 10-K where indicated. |
Part I
Item 1 Business
General
Technitrol, Inc. is a global producer of precision-engineered electronic components and electrical
contact products and materials. We sometimes refer to Technitrol as we or our.
We believe we are a leading global producer of these products and materials in the primary markets
we serve, based on our estimates of the size of our primary markets in annual revenues and our share
of those markets relative to our competitors. Our electronic components are used in virtually all
types of electronic products to manage and regulate electronic signals and power. Electrical contact
products and materials are used in any device in which the continuation or interruption of electrical
currents is necessary. In each case, our products are critical to the functioning of the end product.
Our world-class design and manufacturing capabilities, together with the breadth of our product offerings,
provide us with a competitive advantage that enables us to anticipate and deliver highly-customized
solutions for our customers product needs. In addition, our global presence enables us to participate
in many relevant product and geographic markets and provides us with proximity to our global customer
base. This allows us to better understand and more easily satisfy our customers unique design
and product requirements.
We operate our business in two distinct segments: the electronic components segment, which operates
under the name Pulse, and the electrical contact products segment, which operates under the name
AMI Doduco. We refer to these segments as ECS or Pulse, and ECPS or AMI Doduco, respectively.
We incorporated in Pennsylvania on April 10, 1947 and we are headquartered in Trevose, PA. Our mailing
address is 1210 Northbrook Drive, Suite 470, Trevose, PA 19053-8406, and our telephone number is
215-355-2900. Our website is www.technitrol.com.
Pulse
Pulse designs and manufactures a wide variety of highly-customized electronic components and, through
a majority-owned subsidiary, connector products. Many of these components filter out radio frequency
interference, adjust and ensure proper current and voltage, capture wireless communication signals
and activate certain automotive functions. These products are often referred to as chokes, inductors,
filters, transformers, antennas and coils. Pulse sells its products primarily to multinational original
equipment manufacturers, contract manufacturers and distributors.
Pulses products are used in a broad array of industries, including: |
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consumer electronics; |
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enterprise networking; |
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military/aerospace; |
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power conversion; |
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wireless terminals, such as handsets; |
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telecommunications; and |
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automotive. |
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Representative end products that use Pulses components include: |
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broadband access equipment including cable modems and digital subscriber line, or DSL, devices for
telephone central office and home use; |
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Ethernet switches; |
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military/aerospace navigation and weapon guidance systems; |
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power supplies; |
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routers; |
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televisions and DVD players; |
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laptop computers; |
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video game consoles; |
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voice over Internet equipment; |
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terminal devices, primarily handsets; |
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antenna systems for non-cellular wireless and automotive
systems; and |
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automotive subassemblies, including ignition coils
and other automotive coils. |
Pulses products are generally characterized by relatively short life cycles and rapid technological
change, allowing us to utilize our design and engineering expertise to meet our customers constantly
evolving needs. We believe that the industries served by Pulse have been, and will continue to be,
characterized by ongoing product innovation that will drive the growth in the passive magnetics-based
electronic components industry. We sometimes refer to the Pulse business, excluding products made
by factories which we acquired in the Full Rise Electronic Co., Ltd. (FRE) acquisition
in 2004, the LK Products Oy (LK) acquisition in 2005, the ERA Group (ERA)
and Larsen Group (Larsen) acquisitions in 2006, as the legacy business of Pulse, or Pulse
legacy. We may refer to LK, together with certain assets that we acquired with Larsen and FRE,
as the antenna division. We now refer to the automotive coils of ERA as the automotive division.
Pulse generated $627.5 million, or 65.8% of our revenues, for the year ended December 29, 2006, and
$361.6 million, or 58.7% of our revenues, for the year ended December 30, 2005. Note 19 to the consolidated
financial statements contains additional segment information.
AMI Doduco
AMI Doduco is the only global manufacturer which produces a full array of precious metal electrical
contact products that range from materials used in the fabrication of electrical contacts to completed
contact subassemblies. Contact products complete or interrupt electrical circuits in virtually every
electrical device. AMI Doduco provides its customers with a broad array of highly engineered products
and tools designed to meet unique customer needs. AMI Doduco sells products primarily to multinational
original equipment manufacturers.
AMI Doducos products are used in a broad array of industries, including:
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household appliances; |
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automotive; |
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residential and non-residential construction circuitry; |
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commercial and industrial controls; |
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electric power distribution; and |
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consumer electronics. |
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Representative end products that use AMI Doducos products include: |
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electrical circuit breakers; |
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motor and temperature control devices; |
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power substations; |
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sensors; |
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switches and relays; |
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telephone and computer equipment; and |
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wiring devices. |
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AMI Doducos products are generally characterized by longer life cycles and slower technological
change than those of Pulse. We believe that technological developments in some of the industries
served by AMI Doduco, particularly in the electric power, appliance and automotive industries, along
with opportunities arising from customer outsourcing and consolidation of the electrical contact
industry, present growth opportunities for AMI Doduco.
AMI Doduco generated $326.6 million, or 34.2% of our revenues, for the year ended December 29, 2006,
and $254.8 million, or 41.3% of our revenues, for the year December 30, 2005. Note 19 to the consolidated
financial statements contains additional segment information.
In 2005, we received approximately $6.7 million for the sale of AMI Doducos bimetal and metal
cladding operations. We have reflected the results of the bimetal and metal cladding operations as
discontinued operations on the Consolidated Statements of Operations for all periods presented. Accordingly,
historical amounts included in the Form 10-K have been restated to reflect the discontinued operation. |
Products
Pulse designs and manufactures a wide array of electronic components. These products are highly-customized
to address our customers needs. The following table contains a list of some of Pulses
key products: |
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Primary Products |
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Function |
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Application |
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Discrete Filter or Choke |
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Separates high and low frequency
signals
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Network switches, routers, hubs and personal computers
Phone, fax and alarm systems used with digital subscriber lines, or DSL |
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Filtered Connector, which combines a filter with a connector and stand alone connector products |
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Removes interference, or noise, from circuitry and connects electronic applications |
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Local area networks, or LANs, and wide area networks, or WANs, equipment for personal computers and video game consoles |
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Inductor/chip inductor |
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Regulates electrical current under conditions of varying load |
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AC/DC & DC/DC power supplies Mobile phones and portable devices |
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Power Transformer |
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Modifies circuit voltage |
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AC/DC & DC/DC power supplies |
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Signal Transformer |
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Limits distortion of signal as it passes from one medium to another |
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Analog circuitry
Military/aerospace navigation and weapon guidance systems |
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Internal handset antenna and handset antenna modules |
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Captures communications signals in mobile handsets, personal digital assistants and notebook computers |
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Cell phones, other mobile terminal and information devices |
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Automotive coils |
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Powers a variety of automotive electronic devices |
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Automotive systems management |
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Mobile and portable antennas |
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Transmit non-cellular signals |
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Global positioning systems, automotive antennas and machine to machine communication |
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AMI Doduco designs and manufactures a wide array of contact materials, parts and completed contact
subassemblies. The following table contains a list of some of AMI Doducos key products: |
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Primary Products |
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Function |
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Application |
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Contact prematerial such as wire and metal tapes |
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Raw materials |
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Made into our customers and competitors electrical contact parts |
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Electrical contact parts, either discrete or affixed to precision stamped parts |
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Complete or interrupt an electrical circuit |
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Electrical switches, relays, circuit breakers and motor controls |
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Component subassemblies |
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Integrate contact with precision stampings and plastic housings |
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Sensors and control devices |
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Sales, Marketing and Distribution
Pulse and AMI Doduco sell products predominantly through separate worldwide direct sales forces. Given
the highly technical nature of our customers needs, our direct salespeople typically team up
with members of our engineering staff to discuss a sale with a customers purchasing and engineering
personnel. During the sales process, there is close interaction between our engineers and those in
our customers organizations. This interaction extends throughout a products life cycle,
engendering strong customer relationships. As of December 29, 2006, Pulse had approximately 78 salespeople
and 14 sales offices worldwide and AMI Doduco had approximately 29 salespeople and 7 sales offices
worldwide.
We provide technical and sales support for our direct and indirect sales force. We believe that our
coordinated sales effort provides a high level of market penetration and efficient coverage of our
customers on a cost-effective basis. |
Customers and End Markets
We sell our products and services to original equipment manufacturers, which design, build and market
end-user products. Pulse also sells its products to contract equipment manufacturers. We sometimes
refer to original equipment manufacturers as OEMs and contract equipment manufacturers
as CEMs. CEMs contract with OEMs to manufacture the OEMs products. Many OEMs
use CEMs primarily or exclusively to build their products. Nonetheless, OEMs generally control the
decision as to which component designs best meet their needs. Accordingly, we consider OEMs to be
customers for our products even if they purchase our products through CEMs or independent distributors.
In order to maximize our sales opportunities, Pulses engineering and sales teams also maintain
close relationships with CEMs and distributors. We also sell to independent distributors, which sell
components and materials to both OEMs and CEMs.
For the year ended December 29, 2006, no one customer of Pulse accounted for more than 10% of our consolidated
net sales. However, a group of affiliated customers, when aggregated, are greater than 10%. On a
pro forma basis for the 2005 period, had the acquisition of LK occurred on January 1, 2005, then
the same group of customers most likely would have accounted for more than 10% of our consolidated
net sales. These customers are a major cell phone manufacturer and a CEM for the cell phone manufacturer.
No customer of either Pulse or AMI Doduco accounted for more than 10% of our consolidated net sales
for the year ended December 31, 2004. Sales to our ten largest customers accounted for 38.0% of net
sales for the year ended December 29, 2006 and 34.7% of net sales for the year ended December 30, 2005.
An increasing percentage of our sales in recent years has been outside of the United States. For the
year ended December 29, 2006, 87% of our net sales were outside of the United States. During the
years ended December 30, 2005 and December 31, 2004, 84% and 79%, respectively, of our net sales
were to customers outside of the United States. Sales made by Pulse to its customers outside the
United States accounted for 90% of its net sales for the year ended December 29, 2006, 85% of its
net sales for the year ended December 30, 2005 and 81% for the year ended December 31, 2004. Sales
made by AMI Doduco to its customers outside the United States accounted for 82% of its net sales
for the year ended December 29, 2006, 82% of its net sales for the year ended December 30, 2005 and
78% of its net sales for the year ended December 31, 2004.
Research, Development and Engineering
Our research, development and engineering efforts are focused on the design and development of innovative
products in collaboration with our customers. We work closely with OEMs to identify their design
and engineering requirements. We maintain strategically located design centers where proximity to
customers enables us to better understand and more readily satisfy their design and engineering needs.
Our design process is a disciplined, orderly process that uses a product data management system to
track the level of design activity enabling us to manage and improve how our engineers design products,
and we typically own the customized designs used to make products.
Pulses research, development and engineering expenditures were $35.0 million for the year ended
December 29, 2006, $21.4 million for the year ended December 30, 2005 and $18.4 million for the year
ended December 31, 2004. The increase at Pulse over the past three years is due to the inclusion
of development and engineering expenditures of acquired companies since the date of acquisition.
AMI Doducos research, development and engineering expenditures were $4.6 million for the year
ended December 29, 2006, $4.1 million for the year ended December 30, 2005 and $4.1 million for the
year ended December 31, 2004. We intend to continue to invest in personnel and new technologies to
improve product performance.
Competition
We believe we are a market leader in the primary markets we serve based on our estimates of the size
of those markets in annual revenues and our share of those markets relative to our competitors. We
do not believe that any one company competes with all of the product lines of either Pulse or AMI
Doduco on a global basis. However, both Pulse and AMI Doduco frequently encounter strong competition
within individual product lines, both domestically and internationally. In addition, several OEMs
internally, or through CEMs, manufacture some of the products offered by Pulse and AMI Doduco. We
believe that this represents an opportunity to capture additional market share as OEMs decide to
outsource component operations. Therefore, we constantly work to identify these opportunities and
to convince these OEMs that our economies of scale, purchasing power and manufacturing core competencies
enable us to produce these products more efficiently. Increasingly, Pulses competitors are
located in Asia and enjoy very low cost structures and very low cost of capital. Many of these competitors
aggressively seek market share at the detriment of profits. |
Competitive factors in the markets for our products include: |
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price; |
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product quality and reliability; |
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global design and manufacturing capabilities; |
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breadth of product line; |
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customer service; and |
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delivery time. |
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We believe we compete favorably on the basis of each of these factors. Product quality and reliability,
as well as design and manufacturing capabilities, are enhanced through our commitment to continually
invest in and improve our manufacturing and designing resources and our close relationships with
our customers engineers. The breadth of our product offering provides customers with the ability
to satisfy their entire magnetic component or electrical contact needs through one supplier. Our
global presence enables us to deepen our relationship with our customers and to better understand
and more easily satisfy the needs of local markets. In addition, our ability to purchase raw materials
in large quantities reduces our manufacturing costs, enabling us to price our products competitively.
Employees
As of December 29, 2006, we had approximately 28,100 full-time employees as compared to 29,500 as of
December 30, 2005. Of the 28,100 full-time employees, approximately 600 were located in the United
States. No employees in the United States were covered by collective-bargaining agreements. The number
of employees at year-end includes employees of certain subcontractors that are integral to our operations
in the Peoples Republic of China. Such employees numbered approximately 17,000 and 18,800 as
of December 29, 2006 and December 30, 2005, respectively. We have not experienced any major work
stoppages and consider our relations with our employees to be good.
Raw Materials
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Raw materials necessary for the manufacture of our products include: |
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precious metals such as silver; |
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base metals such as copper and brass; and |
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ferrite cores. |
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We do not currently have significant difficulty obtaining any of our raw materials and do not currently
anticipate that we will face any significant difficulties in the near future. However, many of the
raw materials we use are considered commodities, such as copper, tungsten, nickel, silver and gold,
and the market prices of a number of these commodities have been volatile in the last several years.
Although we are not dependent on any one particular source of supply, several of our raw materials
are only sold by a limited number of suppliers, which could affect on the price of these materials.
Should prices rise or a shortage occur in any necessary raw material, our manufacturing costs will
likely increase, which may result in lower margins or decreased sales if we are unable to pass along
the price increase to our customers.
AMI Doduco uses precious metals, primarily silver, in manufacturing about two thirds of its electrical
contacts, contact materials and contact subassemblies. Historically, we have leased or held these
precious metals through consignment arrangements with our suppliers. Leasing and consignment costs
have historically been substantially below the costs to borrow funds to purchase the metals and these
arrangements eliminate the effect of fluctuations in the market price associated with owned precious
metal. AMI Doducos terms of sale generally allow us to charge customers for the fabricated
market value of silver on the day after we deliver the silver bearing product to the customer. See
additional discussion of precious metals beginning on page 23.
Backlog
Our backlog of orders at December 29, 2006 was $115.1 million compared to $73.0 million at December
30, 2005. We expect to ship the majority of the backlog over the next six months. Customers can cancel
orders at any time, sometimes requiring a payment of cancellation charges. We do not believe that
our backlog is an accurate indicator of near-term business activity because rapid lead times, vendor
managed inventory and other similar consignment type arrangements tend to distort the significance
of backlog. Orders from these arrangements typically are not reflected in backlog. |
Intellectual Property
We own a number of patents and have acquired the use of patents of others under license agreements,
which impose restrictions on others ability to utilize the intellectual property. We seek to
limit disclosure of our intellectual property by generally requiring employees and consultants with
access to our proprietary information to execute confidentiality agreements with us and by restricting
access to our proprietary information.
Existing legal protections afford only limited protection for our products. For example, others may
independently develop similar or competing products or attempt to copy or use aspects of our products
that we regard as proprietary. Furthermore, intellectual property law may not fully protect products
or technology that we consider to be our own, and claims of intellectual property infringement may
be asserted against us or against our customers in connection with their use of our products.
While our intellectual property is important to us in the aggregate, we do not believe any individual
patent, trademark, or license is material to our business or operations.
Environmental
Our manufacturing operations are subject to a variety of local, state, federal, and international environmental
laws and regulations governing air emissions, wastewater discharges, the storage, use, handling,
disposal and remediation of hazardous substances and wastes and employee health and safety. It is
our policy to meet or exceed the environmental standards set by these laws.
We are aware of environmental issues at two locations. In Sinsheim, Germany, there is shallow groundwater
and soil contamination that is naturally decreasing over time. The German environmental authorities
have not required corrective action to date. In addition, property in Leesburg, Indiana, which
was
acquired with our acquisition of GTI in 1998, is the subject of a 1994 Corrective Action Order
to
GTI by the Indiana Department of Environmental Management (IDEM). Although we sold the property
in
early 2005, we retained the responsibility for existing environmental issues at the site. The
order
requires us to investigate and take corrective actions. Substantially all of the corrective
actions
relating to impacted soil have been completed and IDEM has issued us no further action
letters for all of the remediated areas. We anticipate making additional environmental expenditures
in the future to continue our environmental studies, analysis and remediation activities with respect
to the impacted groundwater. Based on current knowledge, we do not believe that any future expenses
or liabilities associated with environmental remediation will have a material impact on our operations
or our consolidated financial position, liquidity or operating results. However, we may be subject
to additional costs and liabilities if the scope of the contamination or the cost of remediation
exceeds our current expectations.
Available Information
We
make available free of charge on our website, www.technitrol.com, all materials that we file electronically
with the Securities and Exchange Commission, including our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports and all Board and
Committee charters, as soon as reasonably practicable after we electronically file or furnish such
materials to the SEC.
Item 1a Risk Factors
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
reflect our current expectations of future events or future financial performance. You can identify
these statements by the fact that they do not relate strictly to historical or current facts. They
often use words such as anticipate, estimate, expect, project,
intend, plan, believe, and similar terms. These forward-looking
statements are based on our current plans and expectations.
Any or all of our forward-looking statements in this report may prove to be incorrect. 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. Accordingly, actual outcomes and results may differ materially
from what is expressed or forecasted in this report.
We
sometimes provide forecasts of future financial performance. The risks and uncertainties described
under Risk Factors as well as other risks identified from time to time in other Securities
and Exchange Commission reports, |
registration statements and public announcements, among others, should be considered in evaluating
our prospects for the future. We undertake no obligation to release updates or revisions to any forward-looking
statement, whether as a result of new information, future events or otherwise.
The
following factors represent what we believe are the major risks and uncertainties in our business.
They are listed in no particular order.
Cyclical changes in the markets we serve could result in a significant decrease in demand for our products
and reduce our profitability.
Our components are used in various products for the electronic and electrical equipment markets. These
markets are highly cyclical. The demand for our components reflects the demand for products in the
electronic and electrical equipment markets generally. A contraction in demand would result in a
decrease in sales of our products, as our customers: |
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may cancel many existing orders; |
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may introduce fewer new products; and |
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may decrease their inventory levels. |
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A decrease in demand for our products would have a significant adverse effect on our operating results
and profitability. Accordingly, we may experience volatility in both our revenues and profits.
Reduced prices for our products may adversely affect our profit margins if we are unable to reduce
our costs of production.
The average selling prices for our products tend to decrease over their life cycle. In addition, foreign
currency movements and the desire to retain market share increase the pressure on our customers to
seek lower prices from their suppliers. As a result, our customers are likely to continue to demand
lower prices from us. To maintain our margins and remain profitable, we must continue to meet our
customers design needs while reducing costs through efficient raw material procurement and
process and product improvements. Our profit margins will suffer if we are unable to reduce our costs
of production as sales prices decline.
An inability to adequately respond to changes in technology or customer needs may decrease our sales.
Pulse operates in an industry characterized by rapid change caused by the frequent emergence of new
technologies. Generally, we expect life cycles for our products in the electronic components industry
to be relatively short. This requires us to anticipate and respond rapidly to changes in industry
standards and customer needs and to develop and introduce new and enhanced products on a timely and
cost effective basis. Our engineering and development teams place a priority on working closely with
our customers to design innovative products and improve our manufacturing processes. Similarly, at
AMI Doduco, the performance and cost of electrical contacts are closely linked to alloys used in
their production. Improving performance and reducing costs for our customers requires continuing
development of new alloys and products. Our inability to react to changes in technology or customer
needs quickly and efficiently may decrease our sales, thus reducing profitability.
If our inventories become obsolete, our future performance and operating results will be adversely
affected.
The life cycles of our products depend heavily upon the life cycles of the end products into which
our products are designed. Many of Pulses products have very short life cycles which are measured
in quarters. Products with short life cycles require us to closely manage our production and inventory
levels. Inventory may become obsolete because of adverse changes in end market demand. During market
slowdowns, this may result in significant charges for inventory write-offs. Our future operating
results may be adversely affected by material levels of obsolete or excess inventories.
An inability to capitalize on our recent or future acquisitions may adversely affect our business.
We have completed several acquisitions in recent years. We continually seek acquisitions to grow our
business. We may fail to derive significant benefits from our acquisitions. In addition, if we fail
to achieve sufficient financial performance from an acquisition, goodwill and other intangibles could
become impaired, resulting in our recognition of a |
loss. In 2005, we recorded a $46.0 million impairment charge related to Pulses consumer
division. The success of any of our acquisitions depends on our ability to: |
|
|
successfully integrate or consolidate acquired operations
into our existing businesses; |
|
|
|
|
develop or modify the financial reporting and information systems of the acquired entity to ensure
overall financial integrity and adequacy of internal control procedures; |
|
|
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|
identify and take advantage of cost reduction opportunities; and |
|
|
|
further penetrate the markets for the product capabilities
acquired. |
|
Integration of acquisitions may take longer than we expect and may never be achieved to the extent
originally anticipated. This could result in lower than anticipated business growth or higher than
anticipated costs. In addition, acquisitions may: |
|
|
cause a disruption in our ongoing business; |
|
|
|
distract our managers; |
|
|
|
unduly burden our other resources; and |
|
|
|
|
result in an inability to maintain our historical standards, procedures and controls, which may result
in non-compliance with external laws and regulations. |
|
Integration of acquisitions into the acquiring segment may limit the ability of investors to track
the performance of individual acquisitions and to analyze trends in our operating results.
Our historical practice has been to rapidly integrate acquisitions into the existing business of the
acquiring segment and to report financial performance on the segment level. As a result of this practice,
we do not separately track the standalone performance of acquisitions after the date of the transaction.
Consequently, investors cannot quantify the financial performance and success of any individual acquisition
or the financial performance and success of a particular segment excluding the impact of acquisitions.
In addition, our practice of rapidly integrating acquisitions into the financial performance of each
segment may limit the ability of investors to analyze any trends in our operating results over time.
An inability to identify additional acquisition opportunities may slow our future growth.
We intend to continue to identify and consummate additional acquisitions to further diversify our business
and to penetrate important markets. We may not be able to identify suitable acquisition candidates
at reasonable prices. Even if we identify promising acquisition candidates, the timing, price, structure
and success of future acquisitions are uncertain. An inability to consummate attractive acquisitions
may reduce our growth rate and our ability to penetrate new markets.
If our customers terminate their existing agreements, or do not enter into new agreements or submit
additional purchase orders for our products, our business will suffer.
Most of our sales are made on a purchase order basis, as needed by our customers. In addition, to the
extent we have agreements in place with our customers, most of these agreements are either short
term in nature or provide our customers with the ability to terminate the arrangement with little
or no prior notice. Such agreements typically do not provide us with any material recourse in the
event of non-renewal or early termination. We will lose business and our revenues will decrease if
a significant number of customers: |
|
|
do not submit additional purchase orders; |
|
|
|
do not enter into new agreements with us; or |
|
|
|
elect to terminate their relationship with us. |
|
If we do not effectively manage our business in the face of fluctuations in the size of our organization,
our business may be disrupted.
We have grown over the last fifteen years, both organically and as a result of acquisitions. However,
we significantly reduce or expand our workforce and facilities in response to rapid changes in demand
for our products due to prevailing global market conditions. These rapid fluctuations place strains
on our resources and systems. If we do not effectively manage our resources and systems, our businesses
may be adversely affected. |
Uncertainty in demand for our products may result in increased costs of production, an inability to
service our customers, or higher inventory levels which may adversely affect our results of operations
and financial condition.
We have very little visibility into our customers purchasing patterns and are highly dependent
on our customers forecasts. These forecasts are non-binding and often highly unreliable. Given
the fluctuation in growth rates and cyclical demand for our products, as well as our reliance on
often-imprecise customer forecasts, it is difficult to accurately manage our production schedule,
equipment and personnel needs and our raw material and working capital requirements. Our failure
to effectively manage these issues may result in: |
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production delays; |
|
|
|
increased costs of production; |
|
|
|
excessive inventory levels and reduced financial liquidity; |
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|
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an inability to make timely deliveries; and |
|
|
|
a decrease in profits. |
|
A decrease in availability of our key raw materials could adversely affect our profit margins.
We use several types of raw materials in the manufacturing of our products, including: |
|
|
precious metals such as silver; |
|
|
|
other base metals such as copper and brass; and |
|
|
|
ferrite cores. |
|
Some of these materials are produced by a limited number of suppliers. From time to time, we may be
unable to obtain these raw materials in sufficient quantities or in a timely manner to meet the demand
for our products. The lack of availability or a delay in obtaining any of the raw materials used
in our products could adversely affect our manufacturing costs and profit margins. In addition, if
the price of our raw materials increases significantly over a short period of time due to increased
market demand or shortage of supply, customers may be unwilling to bear the increased price for our
products and we may be forced to sell our products containing these materials at prices that reduce
our profit margins.
Costs associated with precious metals and base metals may not be recoverable.
Some of our raw materials, such as precious metals and certain base metals, are considered commodities
and are subject to price volatility. We attempt to limit our exposure to fluctuations in the cost
of precious materials, including silver, by holding the majority of our precious metal inventory
through leasing or consignment arrangements with our suppliers. We then typically purchase the precious
metal from our supplier at the current market price on the day after delivery to our customer and
pass this cost on to our customer. We try to limit our exposure to base metal price fluctuations
by attempting to pass through the cost of base metals to our customers, typically by indexing the
cost of the base metal, so that our cost of the base metal closely relates to the price we charge
our customers, but we may not always be successful in indexing these costs or fully passing through
costs to our customers.
Leasing/consignment fee increases are caused by increases in interest rates or volatility in the price
of the consigned material. Fees charged by the consignor are driven by interest rates and the market
price of the consigned material. The market price of the consigned material is determined by the
supply of, and the demand for, the material. Consignment fees may increase if interest rates or the
price of the consigned material increase.
Our results of operations and liquidity will be negatively impacted if: |
|
|
|
we are unable to enter into new leasing or consignment arrangements with similarly favorable terms
after our existing agreements terminate, or |
|
|
|
|
|
our leasing or consignment fees increase significantly in a short period of time and we are unable
to recover these increased costs through higher sale prices, or |
|
|
|
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|
we are unable to pass through higher base metals costs to our customers. |
Competition may result in lower prices for our products and reduced sales.
Both Pulse and AMI Doduco frequently encounter strong competition within individual product lines from
various competitors throughout the world. We compete principally on the basis of: |
|
|
product quality and reliability; |
|
|
|
global design and manufacturing capabilities; |
|
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breadth of product line; |
|
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customer service; |
|
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|
price; and |
|
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on-time delivery. |
|
Our inability to successfully compete on any or all of the above factors may result in reduced sales.
Fluctuations in foreign currency exchange rates may adversely affect our operating results.
We manufacture and sell our products in various regions of the world and export and import these products
to and from a large number of countries. Fluctuations in exchange rates could negatively impact our
cost of production and sales which, in turn, could decrease our operating results and cash flow.
In addition, if the functional currency of our manufacturing costs strengthened compared to the functional
currency of our competitors, manufacturing costs, our products may become more costly than
our competitors. Although we engage in limited hedging transactions, including foreign currency
contracts, to reduce our transaction and economic exposure to foreign currency fluctuations, these
measures may not eliminate or substantially reduce our risk in the future.
Our international operations subject us to the risks of unfavorable political, regulatory, labor and
tax conditions in other countries.
We manufacture and assemble most of our products in locations outside the United States, including
the Peoples Republic of China, or PRC, Hungary and Tunisia and a majority of our
revenues are derived from sales to customers outside the United States. Our future operations and
earnings may be adversely affected by the risks related to, or any other problems arising from, operating
in international markets.
Risks inherent in doing business internationally may include: |
|
|
the ability to repatriate cash on a timely basis; |
|
|
|
economic and political instability; |
|
|
|
expropriation and nationalization; |
|
|
|
trade restrictions; |
|
|
|
capital and exchange control programs; |
|
|
|
transportation delays; |
|
|
|
foreign currency fluctuations; and |
|
|
|
|
unexpected changes in the laws and policies of the United States or of the countries in which we manufacture
and sell our products. |
|
Pulse has the majority of its manufacturing operations in the PRC, except for the automotive division.
Our presence in the PRC has enabled Pulse to maintain lower manufacturing costs and to adjust our
work force to demand levels for our products. Although the PRC has a large and growing economy, the
potential economic, political, legal and labor developments entail uncertainties and risks. For example,
wages have been increasing over the last several years in the southern coastal provinces. While the
PRC has been receptive to foreign investment, we cannot be certain that its current policies will
continue indefinitely into the future. In the event of any changes that adversely affect our ability
to conduct our operations within the PRC, our businesses may suffer. We also have manufacturing operations
in Tunisia, which is subject to unique risks, including earthquakes and those associated with Middle
East geo-political events.
We have benefited over recent years from favorable tax treatment as a result of our international operations.
We operate in countries where we realize favorable income tax treatment relative to the U.S. statutory
rate. We have also been granted special tax incentives commonly known as tax holidays in countries
such as the PRC, Hungary and Tunisia. This favorable situation could change if these countries were
to increase rates or revoke the special tax incentives, or if we discontinue our manufacturing operations
in any of these countries and do not replace the operations with operations in other locations with
favorable tax incentives. Accordingly, in the event of changes in laws and regulations affecting
our international operations, we may not be able to continue to take advantage of similar benefits
in the future. |
Shifting our operations between regions may entail considerable expense.
In the past we have shifted our operations from one region to another in order to maximize manufacturing
and operational efficiency. We may close one or more additional factories in the future. This could
entail significant one-time earnings charges to account for severance, equipment write-offs or write
downs and moving expenses, as well as certain adverse tax consequences including the loss of specialized
tax incentives or non-deductible expenses. In addition, as we implement transfers of our operations
we may experience disruptions, including strikes or other types of labor unrest resulting from layoffs
or termination of employees.
Liquidity requirements could necessitate movements of existing cash balances which may be subject to
restrictions or cause unfavorable tax and earnings consequences.
A significant portion of our cash is held offshore by our international subsidiaries and is predominantly
denominated in currencies other than the U.S. dollar. While we intend to use a significant amount
of the cash held overseas to fund our international operations and growth, if we encounter a significant
domestic need for liquidity that we cannot fulfill through borrowings, equity offerings, or other
internal or external sources, we may experience unfavorable tax and earnings consequences if this
cash is transferred to the United States. These adverse consequences would occur if the transfer
of cash into the United States is taxed and no offsetting foreign tax credit is available to offset
the U.S. tax liability, resulting in lower earnings. In addition, we may be prohibited from transferring
cash from the PRC. For example, foreign exchange ceilings imposed by local governments and sometimes
lengthy approval processes which foreign governments require for international cash transfers may
delay our internal cash transfers from time to time. We have not experienced any significant liquidity
restrictions in any country in which we operate and none are presently foreseen.
With the exception of approximately $21.4 million of retained earnings as of December 29, 2006 in primarily
the PRC that are restricted in accordance with the PRC Foreign Investment Enterprises Law, substantially
all retained earnings are free from legal or contractual restrictions. This law restricts 10% of
our net earnings in the PRC, up to a maximum amount equal to 50% of the total capital we have invested
in the PRC.
Losing the services of our executive officers or our other highly qualified and experienced employees
could adversely affect our business.
Our success depends upon the continued contributions of our executive officers and management, many
of whom have many years of experience and would be extremely difficult to replace. We must also attract
and maintain experienced and highly skilled engineering, sales and marketing and managerial personnel.
Competition for qualified personnel is intense in our industries, and we may not be successful in
hiring and retaining these people. If we lose the services of our executive officers or cannot attract
and retain other qualified personnel, our businesses could be adversely affected.
Public health epidemics (such as flu strains, or severe acute respiratory syndrome) or other natural
disasters (such as earthquakes or fires) may disrupt operations in affected regions and affect operating
results.
Pulse maintains extensive manufacturing operations in the PRC and Tunisia, as do many of our customers
and suppliers. A sustained interruption of our manufacturing operations, or those of our customers
or suppliers, as a result of complications from severe acute respiratory syndrome or another public
health epidemic or other natural disasters, could have a material adverse effect on our business
and results of operations.
The unavailability of insurance against certain business risks may adversely affect
our future operating results.
As part of our comprehensive risk management program, we purchase insurance coverage against
certain business risks. If any of our insurance carriers discontinues an insurance policy or significantly
reduces available coverage or increases in the deductibles and we cannot find another insurance carrier
to write comparable coverage, we may be subject to uninsured losses which may adversely affect
our operating results. |
Environmental liability and compliance obligations may affect our operations and results.
Our manufacturing operations are subject to a variety of environmental laws and regulations as well
as internal programs and policies governing: |
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|
air emissions; |
|
|
|
wastewater discharges; |
|
|
|
|
the storage, use, handling, disposal and remediation of hazardous substances, wastes and chemicals;
and |
|
|
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|
employee health and safety. |
|
If violations of environmental laws should occur, we could be held liable for damages, penalties, fines
and remedial actions. Our operations and results could be adversely affected by any material obligations
arising from existing laws, as well as any required material modifications arising from new regulations
that may be enacted in the future. We may also be held liable for past disposal of hazardous substances
generated by our business or businesses we acquire. In addition, it is possible that we may be held
liable for contamination discovered at our present or former facilities.
We are aware of environmental issues at two locations. In Sinsheim, Germany, there is shallow groundwater
and soil contamination that is naturally decreasing over time. The German environmental authorities
have not required corrective action to date. In addition, property in Leesburg, Indiana, which
was
acquired with our acquisition of GTI in 1998, is the subject of a 1994 Corrective Action Order
to
GTI by the Indiana Department of Environmental Management (IDEM). Although we sold the property
in
early 2005, we retained the responsibility for existing environmental issues at the site. The
order
requires us to investigate and take corrective actions. Substantially all of the corrective
actions
relating to impacted soil have been completed and IDEM has issued us no further action
letters for all of the remediated areas. We anticipate making additional environmental expenditures
in the future to continue our environmental studies, analysis and remediation activities with respect
to the impacted groundwater. Based on current knowledge, we do not believe that any future expenses
or liabilities associated with environmental remediation will have a material impact on our operations
or our consolidated financial position, liquidity or operating results. However, we may be subject
to additional costs and liabilities if the scope of the contamination or the cost of remediation
exceeds our current expectations.
Item 1b Unresolved Staff Comments
None |
Item 2 Properties
We are headquartered in Trevose, Pennsylvania where we lease 8,000 square feet of office space. Through
Pulse and AMI Doduco, we operated 32 manufacturing plants in 10 countries as of December 29, 2006.
We continually seek to size our operations in order to maximize cost efficiencies. Accordingly, in
the future, we may take further actions to increase or decrease our manufacturing capacity. To maximize
production efficiencies, we seek, whenever practical, to establish manufacturing facilities in countries
where we can take advantage of lower labor costs and, if available, various government incentives
and tax benefits. We also seek to maintain facilities in those regions where we market our products
in order to maintain a local presence in proximity to our customers.
The following is a list of the locations of our principal manufacturing facilities at December 29,
2006: |
|
Pulse
Location (1) |
Approx. Square
Ft. (2) |
|
Owned/Leased |
|
Approx. Percentage
Used For Manufacturing |
|
|
|
|
|
|
|
|
Ningbo, Peoples Republic of China, or PRC (3) |
|
363,000 |
|
|
Owned |
|
|
80 |
% |
Zhuhai, PRC |
|
323,000 |
|
|
Leased |
|
|
100 |
% |
Dongguan, PRC |
|
231,000 |
|
|
Leased |
|
|
100 |
% |
Zhongshan, PRC |
|
173,000 |
|
|
Leased |
|
|
90 |
% |
Suzhou, PRC |
|
132,000 |
|
|
Leased |
|
|
100 |
% |
Kempele, Finland |
|
117,000 |
|
|
Leased |
|
|
80 |
% |
Bizerte, Tunisia |
|
76,000 |
|
|
Owned |
|
|
90 |
% |
Shenzhen, PRC |
|
58,000 |
|
|
Leased |
|
|
100 |
% |
Mianyang, PRC |
|
51,000 |
|
|
Leased |
|
|
100 |
% |
Herrenberg, Germany |
|
36,000 |
|
|
Leased |
|
|
100 |
% |
Vancouver, Washington |
|
30,000 |
|
|
Leased |
|
|
60 |
% |
Komarom, Hungary |
|
18,000 |
|
|
Leased |
|
|
75 |
% |
Meinerzagen, Germany |
|
16,000 |
|
|
Leased |
|
|
80 |
% |
Yang Mei, Taiwan (3) |
|
14,000 |
|
|
Owned |
|
|
80 |
% |
Bristol, Pennsylvania |
|
12,000 |
|
|
Leased |
|
|
50 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
1,650,000 |
|
|
|
|
|
|
|
|
|
(1) |
In addition to these manufacturing locations, Pulse has 258,000 square feet of space which is used
for engineering, sales and administrative support functions at various locations, including Pulses
headquarters in San Diego, California. In addition, Pulse leases approximately 1,663,000 square feet
of space for dormitories, canteens and other employee-related facilities in the PRC. |
|
|
(2) |
Consists of aggregate square footage in each locality where manufacturing facilities are located. More
than one manufacturing facility may be located within each locality. |
|
|
(3) |
Primarily facilities of Full Rise Electronic Co., Ltd. (FRE), a majority owned subsidiary,
of which we owned approximately 71% at December 29, 2006. |
|
|
AMI Doduco
Location (1) |
Approx. Square Ft. |
|
Owned/Leased |
|
Approx. Percentage
Used For Manufacturing |
|
|
|
|
|
|
|
|
Pforzheim, Germany |
|
490,000 |
|
|
Owned |
|
|
65 |
% |
Sinsheim, Germany |
|
222,000 |
|
|
Owned |
|
|
60 |
% |
Export, Pennsylvania |
|
115,000 |
|
|
Leased |
|
|
80 |
% |
Tianjin, PRC |
|
62,000 |
|
|
Leased |
|
|
100 |
% |
Mexico City, Mexico |
|
37,000 |
|
|
Leased |
|
|
80 |
% |
Luquillo, Puerto Rico |
|
32,000 |
|
|
Owned |
|
|
80 |
% |
Madrid, Spain |
|
31,000 |
|
|
Owned |
|
|
90 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
989,000 |
|
|
|
|
|
|
|
|
|
(1) |
Engineering, sales and administrative support functions for AMI Doduco are generally contained in these
locations. |
|
We have developed our manufacturing processes in ways intended to maximize our economic profitability.
Accordingly, Pulse legacy facilities maintain a cost structure that is labor intensive and highly
variable. The labor intensity at Pulse legacy facilities enables us to increase and decrease production
rapidly to contain costs during slower periods. Unlike Pulse legacy facilities, the Pulse antenna
and automotive divisions manufacturing plants are highly automated and therefore very sensitive
to the volume of production. AMI Doducos products tend to have longer business cycles, longer
time to market and are more capital intensive than Pulse legacy products. As a result, we have automated
or mechanized many functions at AMI Doduco facilities and vertically integrated our products in an
attempt to utilize all of our manufacturing capabilities to create higher value added products and
at a lower cost. |
Traditionally, our engineers design products to meet our customers product needs and then we
mass-produce the products once a contract is awarded by, or orders are received from, our customer.
We also service customers that design their own components and outsource production of these components
to us. We then build the components to the customers design.
The productive capacity and extent of utilization of our facilities are difficult to quantify. In any
one facility, maximum capacity and utilization vary periodically depending on the segments
manufacturing strategies, the product being manufactured and the current market conditions and demand.
We estimate that our average utilization of overall production capacity in 2006 was between 85% to
95% for Pulse and 70% to 80% for AMI Doduco.
Item 3 Legal Proceedings
We
are a party to various legal proceedings and other actions. See discussion in Note 11 to the consolidated
financial statements. We expect litigation to arise in the normal course of business. Although it
is difficult to predict the outcome of any legal proceeding, we do not believe these proceedings
and actions will, individually or in the aggregate, have a material adverse effect on our consolidated
financial condition or results of operations.
Item 4 Submission of Matters to a Vote of Security Holders
None |
Part II
Item 5 Market for Registrants Common Equity and Related Stockholder
Matters
Our
common stock is traded on the New York Stock Exchange under the ticker symbol TNL. The
following table reflects the highest and lowest sales prices in each quarter of the last two years.
|
|
|
First Quarter |
|
Second Quarter |
|
Third Quarter |
|
Fourth Quarter |
|
|
|
|
|
|
|
|
|
|
2006 High |
$ |
24.04 |
|
$ |
28.55 |
|
$ |
30.85 |
|
$ |
32.28 |
|
2006 Low |
$ |
16.78 |
|
$ |
20.01 |
|
$ |
18.20 |
|
$ |
22.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 High |
$ |
19.03 |
|
$ |
15.28 |
|
$ |
15.52 |
|
$ |
18.05 |
|
2005 Low |
$ |
14.35 |
|
$ |
12.20 |
|
$ |
12.55 |
|
$ |
14.14 |
|
|
On
December 29, 2006, there were approximately 1,121 registered holders of our common stock, which has
a par value of $0.125 per share and is the only class of stock that we have outstanding. See additional
discussion on restricted earnings in Item 7, Liquidity and Capital Resources, and in Note 12 of Notes
to consolidated financial statements.
We used $14.2 million for dividend payments during the year ended December 29, 2006. On October 31,
2006, we announced a quarterly cash dividend of $0.0875 per common share, payable on January 19,
2007 to shareholders of record on January 5, 2007. This quarterly dividend will result in a cash
payment to shareholders of approximately $3.5 million in the first quarter of 2007. We expect to
continue making quarterly dividend payments for the foreseeable future. We used $10.6 million for
dividend payments during the year ended December 30, 2005 and did not declare or pay cash dividends
on our common stock during the year ended December 31, 2004. |
|
Information as of December 29, 2006 concerning plans under which our equity securities are authorized for issuance are as follows: |
|
Plan Category |
Number of shares to be issued
upon exercise of options, grant
of restricted shares or other
incentive shares |
|
Weighted average
exercise price of
outstanding options |
|
Number of securities
remaining available
for future issuance |
|
|
|
|
Equity compensation plans
approved by security holders |
|
6,005,000 |
|
$ |
18.99 |
|
|
2,985,579 |
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not
approved by security holders |
|
0 |
|
|
0 |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
6,005,000 |
|
$ |
18.99 |
|
|
2,985,579 |
|
|
On May 15, 1981, our shareholders approved an incentive compensation plan (ICP) intended
to enable us to obtain and retain the services of employees by providing them with incentives that
may be created by the Board of Directors Compensation Committee under the ICP. Subsequent amendments
to the plan were approved by our shareholders including an amendment on May 23, 2001 which increased
the total number of shares of our common stock which may be granted under the plan to 4,900,000.
Our 2001 Stock Option Plan and the Restricted Stock Plan II were adopted under the ICP. In addition
to the ICP, plans approved by us include a 105,000 share Board of Director Stock Plan and an Employee
Stock Purchase Plan. The maximum number of shares which may be issued under our Employee Stock Purchase
Plan is 1,000,000, provided, however, that such amount will be automatically increased annually beginning
on August 1, 2002 in an amount equal to the lesser of (a) 200,000 shares, or (b) two percent (2%)
of the outstanding common stock as of the last day of the prior fiscal year or alternatively (c)
such an amount as may be determined by our board of directors. In 2003, our board of directors determined
that no increase for 2003 or 2004 should be made. During 2004, the operation of the Employee Stock
Purchase Plan was suspended following an evaluation of its affiliated expense and perceived value
by employees. Of the 2,985,579 shares remaining available for future issuance, 2,130,549 shares are
attributable to our Restricted Stock Plan and our Stock Option Plan, 812,099 shares are attributable
to our Employee Stock Purchase Plan, and 42,931 shares are attributable to our Board of Director
Stock Plan. Note 13 to the consolidated financial statements contains additional information regarding
our stock based compensation plans. |
Comparison of Five-Year Cumulative Total Return |
|
The following graph compares the growth in value on a total-return basis of $100 investments in Technitrol, the Russell 2000® Index and the Dow Jones Electrical Components and Equipment Industry Group Index between December 28, 2001 and December 29, 2006. Total-return data reflect closing share prices on
the final day of each Technitrol fiscal year. Cash dividends paid are considered as if reinvested.
The graph does not reflect intra-year price fluctuations. |
|
The Russell 2000® Index consists of the 2,000 smallest companies and about 8% of the total market capitalization of the Russell
3000® Index. The Russell 3000 represents about 98% of the investable U.S. equity market. As
of the latest reconstitution, the average market capitalization of the Russell 2000 was approximately
$762.8 million. |
|
At December
29, 2006, the Dow Jones U.S. Electrical Components and Equipment Index included the common stock of Amphenol Corp., Anaren, Inc., Anixter International, Inc., Arrow Electronics,
Inc., Avnet, Inc., AVX Corp., Belden CDT, Inc., Benchmark Electronics, Inc., Commscope, Inc., Cooper
Industries Ltd. Class A, CTS Corp., Emerson Electric Co., Energy Conversion Devices, Inc., Flextronics
International, Ltd., FuelCell Energy, Inc., General Cable Corp., GrafTech International Ltd., Hubbell
Inc. Class B, Itron, Inc., Jabil Circuit, Inc., Kemet Corp., Littelfuse, Inc., Methode Electronics,
Inc., Molex, Inc. and Molex, Inc. Class A, Park Electrochemical Corp., Plexus Corp., Power-One, Inc.,
Powerwave Technologies, Inc., Regal-Beloit Corp., Sanmina-SCI Corp., Solectron Corp., SPX Corp.,
Technitrol, Inc., Thomas & Betts Corp., Wesco International, Inc. and Vishay Intertechnology, Inc. |
|
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technitrol |
$ |
100.00 |
|
$ |
59.42 |
|
$ |
73.08 |
|
$ |
64.30 |
|
$ |
61.48 |
|
$ |
87.27 |
|
Russell 2000® Index |
|
100.00 |
|
|
78.89 |
|
|
115.40 |
|
|
137.12 |
|
|
143.36 |
|
|
169.69 |
|
Dow Jones U.S. Electrical Components &
Equipment Index |
|
100.00 |
|
|
57.97 |
|
|
95.37 |
|
|
89.93 |
|
|
92.30 |
|
|
104.09 |
|
Item 6 Selected Financial Data (in thousands, except per share amounts) |
|
|
2006(10)(9) |
|
2005(8)(7) |
|
2004(6)(5) |
|
2003(4) |
|
2002(3) |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
954,096 |
|
$ |
616,378 |
|
$ |
561,298 |
|
$ |
494,856 |
|
$ |
391,316 |
|
Earnings (loss) from continuing operations
before cumulative effect of
accounting change |
$ |
56,895 |
|
$ |
(24,428 |
) |
$ |
7,107 |
|
$ |
12,333 |
|
$ |
(28,644 |
) |
Cumulative effect of accounting change,
net of income taxes |
|
75 |
|
|
(564 |
) |
|
|
|
|
|
|
|
(15,738 |
) |
Net earnings (loss) from discontinued
operations |
|
233 |
|
|
(472 |
) |
|
(179 |
) |
|
(345 |
) |
|
845 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
57,203 |
|
$ |
(25,464 |
) |
$ |
6,928 |
|
$ |
11,988 |
|
$ |
(43,537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations before cumulative effect of
accounting change |
$ |
1.41 |
|
$ |
(0.61 |
) |
$ |
0.18 |
|
$ |
0.31 |
|
$ |
(0.77 |
) |
Cumulative effect of accounting change,
net of income taxes |
|
0.00 |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
(0.42 |
) |
Net earnings (loss) from discontinued
operations |
|
0.01 |
|
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.01 |
) |
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
1.42 |
|
$ |
(0.63 |
) |
$ |
0.17 |
|
$ |
0.30 |
|
$ |
(1.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations before cumulative effect of accounting change |
$ |
1.40 |
|
$ |
(0.61 |
) |
$ |
0.18 |
|
$ |
0.31 |
|
$ |
(0.77 |
) |
Cumulative effect of accounting change,
net of income taxes |
|
0.00 |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
(0.42 |
) |
Net earnings (loss) from discontinued
operations |
|
0.01 |
|
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.01 |
) |
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
1.41 |
|
$ |
(0.63 |
) |
$ |
0.17 |
|
$ |
0.30 |
|
$ |
(1.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
$ |
770,880 |
|
$ |
686,302 |
|
$ |
636,528 |
|
$ |
588,894 |
|
$ |
547,706 |
|
Total long-term debt |
$ |
57,391 |
|
$ |
83,492 |
|
$ |
7,255 |
|
$ |
6,837 |
|
$ |
16,348 |
|
Shareholdersequity |
$ |
480,429 |
|
$ |
418,664 |
|
$ |
464,862 |
|
$ |
448,750 |
|
$ |
422,059 |
|
Net worth per share |
$ |
11.79 |
|
$ |
10.33 |
|
$ |
11.49 |
|
$ |
11.14 |
|
$ |
10.52 |
|
Working capital (1) |
$ |
189,004 |
|
$ |
209,841 |
|
$ |
238,898 |
|
$ |
199,770 |
|
$ |
235,579 |
|
Current ratio |
|
2.0 to 1 |
|
|
2.1 to 1 |
|
|
2.9 to 1 |
|
|
2.7 to 1 |
|
|
3.2 to 1 |
|
Number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average, including common
stock equivalents |
|
40,594 |
|
|
40,297 |
|
|
40,411 |
|
|
40,171 |
|
|
37,281 |
|
Year end |
|
40,751 |
|
|
40,529 |
|
|
40,448 |
|
|
40,279 |
|
|
40,130 |
|
Dividends declared per share (2) |
$ |
0.35 |
|
$ |
0.35 |
|
$ |
|
|
$ |
|
|
$ |
|
|
Price range per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
$ |
32.28 |
|
$ |
19.03 |
|
$ |
23.28 |
|
$ |
24.43 |
|
$ |
31.40 |
|
Low |
$ |
16.78 |
|
$ |
12.20 |
|
$ |
16.10 |
|
$ |
13.50 |
|
$ |
12.66 |
|
|
|
(1) |
Includes cash and cash equivalents and current installments of long-term debt. |
(2) |
On February 2, 2005 we resumed the practice of paying a quarterly dividend. |
(3) |
During 2002, we recorded a cumulative effect of accounting change of $15.7 million net of income tax
benefit, and a $32.1 million intangible asset impairment, less a $12.8 million tax benefit. |
(4) |
On January 9, 2003 we purchased Eldor High Tech Wire Wound Components S.r.L. for $83.9 million in cash.
|
(5) |
During 2004, we recorded $18.5 million in intangible asset impairments, less a $2.2 million tax benefit.
|
(6) |
On September 13, 2004 we acquired a controlling interest in Full Rise Electronic Co., Ltd. (FRE),
and began consolidating FREs results, less a minority interest. Our investment in FRE was previously
accounted for under the equity method. Our ownership percentage in FRE was approximately 71% as of
December 29, 2006. |
(7) |
On September 8, 2005, we purchased LK Products Oy for $111.1 million in cash. |
(8) |
During 2005, we recorded a charge for a cumulative effect of accounting change of $0.6 million net
of an income tax benefit which is included in net (loss) earnings from continuing operations. Additionally,
we recorded a $37.1 million intangible asset impairment and an $8.9 million fixed asset impairment,
less a $0.2 million tax benefit. |
(9) |
On January 4, 2006, we acquired the ERA Group for $53.4 million in cash financed primarily through
borrowings from our multi-currency credit facility. |
(10) |
During 2006, we included an after-tax gain of $0.1 million in net (loss) earnings from continuing operations
due to a cumulative effect of accounting change. |
Item 7 Managements Discussion and Analysis of Financial Condition
and Results of Operations
Introduction
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 and involve a number of risks and uncertainties.
Actual results may differ materially from those anticipated in these forward-looking statements for
many reasons, including the risks faced by us described in Risk Factors section of this
report on page 8 through 14.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted
accounting principles requires us to make judgments, assumptions and estimates that affect the amounts
reported in the consolidated financial statements and accompanying notes. Note 1 to the consolidated
financial statements in pages 42 through 44 describes the significant accounting policies and methods
used in the preparation of the consolidated financial statements. Estimates are used for, but not
limited to, the accounting for inventory valuation, impairment of goodwill and other intangibles,
severance and asset impairment expense, income taxes, and contingency accruals. Actual results could
differ from these estimates. The following critical accounting policies are impacted significantly
by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.
Inventory Valuation. We carry our inventories at lower of cost or market. We establish inventory provisions to write down
excess and obsolete inventory to market value. We utilize historical trends and customer forecasts
to estimate expected usage of on-hand inventory. In addition, inventory purchases are based upon
future demand forecasts estimated by taking into account actual sales of our products over recent
historical periods and customer forecasts. If there is a sudden and significant decrease in demand
for our products or there is a higher risk of inventory obsolescence because of rapidly changing
technology or customer requirements, we may be required to write down our inventory and our gross
margin could be negatively affected. Conversely, if we were to sell or use a significant portion
of inventory already written down, our gross margin could be positively affected.
Impairment of Goodwill and Other Intangibles. We assess the carrying cost of goodwill and intangible assets with indefinite lives on an annual
basis and on an interim basis in certain circumstances. This assessment is based on comparing fair
value to carrying cost. Fair value is based on estimating future cash flows using various growth
assumptions and discounting based on a present value factor. Assigning a useful life and periodically
reassessing a remaining useful life (for purposes of systematic amortization) is also predicated
on various economic assumptions. Our intangible assets are also subject to impairment as a result
of other factors such as changing technology, declines in demand that lead to excess capacity and
other factors. In addition to the various assumptions, judgments and estimates mentioned above, we
may strategically realign our resources and consider restructuring, disposing of, or otherwise exiting
businesses in response to changes in industry or market conditions, which could result in an impairment
of goodwill or other intangibles.
Severance and Asset Impairment Expense. We record severance, tangible asset impairments and other restructuring charges such as lease
terminations, in response to declines in demand that lead to excess capacity, changing technology
and other factors. These costs, which we refer to as restructuring costs, are expensed during the
period in which we determine that we will incur those costs, and all of the requirements for accrual
are met in accordance with the applicable accounting guidance. Restructuring costs are recorded based
upon our best estimates at the time the action is initiated. Our actual expenditures for the restructuring
activities may differ from the initially recorded costs. If this occurs, we could be required either
to record additional expenses in future periods if our initial estimates were too low, or reverse
part of the charges that we recorded initially if our initial estimates were too high. In the case
of acquisition-related restructuring costs, depending on whether certain requirements are met in
accordance with the applicable accounting guidance, such costs would generally require a change in
value of the goodwill appearing on our balance sheet, which may not affect our earnings.
Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, income
tax expense/benefit is recognized for the amount of taxes payable or refundable for the current year
and for deferred tax liabilities and assets for the future tax consequences of events that have been
recognized in an entitys financial statements or tax returns. We must make assumptions, judgments
and estimates to determine our current provision for income taxes and also our deferred tax assets
and liabilities and any valuation allowance to be recorded against a deferred tax asset. Our judgments,
assumptions and estimates relative to the current provision for income tax take into account current
tax laws, our interpretation of current tax laws and possible outcomes of current and future audits
conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax
laws and the resolution of current and future tax audits could significantly impact the amounts provided
for income taxes in our |
consolidated financial statements. Our assumptions, judgments and estimates relative to the value of
a deferred tax asset take in to account predictions of the amount and category of future taxable
income. Actual operating results and the underlying amount and category of income in future years
could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate.
Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax
obligations to differ from our estimates.
Contingency Accruals. During the normal course of business, a variety of issues may arise, which may result in litigation,
environmental compliance and other contingent obligations. In developing our contingency accruals
we consider both the likelihood of a loss or incurrence of a liability as well as our ability to
reasonably estimate the amount of exposure. We record contingency accruals when a liability is probable
and the amount can be reasonably estimated. We periodically evaluate available information to assess
whether contingency accruals should be adjusted. Our evaluation includes an assessment of legal interpretations,
judicial proceedings, recent case law and specific changes or developments regarding known claims.
We could be required to record additional expenses in future periods if our initial estimates were
too low, or reverse part of the charges that we recorded initially if our estimates were too high.
Overview
We are a global producer of precision-engineered electronic components and electrical contact products
and materials. We believe we are a leading global producer of these products and materials in the
primary markets we serve based on our estimates of the size of our primary markets in annual revenues
and our share of those markets relative to our competitors.
We operate our business in two distinct segments: |
|
|
Pulse, which manufactures electronic components, and |
|
|
|
AMI Doduco, which manufactures electrical contact products. |
|
General. We define net sales as gross sales less returns and allowances. We sometimes refer to net sales
as revenue.
Historically, the gross margin at Pulse has been significantly higher than at AMI Doduco. As a result,
the mix of net sales generated by Pulse and AMI Doduco during a period affects our consolidated gross
margin. Additionally, our gross margin is affected by our acquisitions, such as LK and ERA. Our gross
margin is also significantly affected by capacity utilization, particularly in higher fixed-cost
operations in AMI Doduco and Pulses antenna and automotive divisions. AMI Doducos, and
to a lesser extent Pulses, gross margin is also affected by the price of precious and non-precious
metals that are passed through to customers at nominal margins. Pulses markets are characterized
by relatively short product life cycles compared to AMI Doduco. As a result, significant product
turnover occurs each year. Therefore, Pulses changes in average selling prices do not necessarily
provide a meaningful and quantifiable measure of Pulses operations. AMI Doduco has a relatively
long-term and mature product line, with less turnover, and with less frequent variation in the prices
of product sold, relative to Pulse. Many of AMI Doducos products are sold under annual (or
longer) purchase contracts. Therefore, AMI Doducos revenues historically have not been subject
to significant price fluctuations. In addition, sales growth and contraction at AMI Doduco and Pulses
consumer, antenna and automotive divisions are generally attributable to changes in unit volume and
changes in unit pricing, as well as foreign exchange rates, especially the U.S. dollar to the euro.
Acquisitions. Acquisitions have been an important part of our growth strategy. In many cases, our move into
new product lines and extensions of our existing product lines or markets has been facilitated by
an acquisition. Our acquisitions continually change the mix of our net sales. We have made numerous
acquisitions in recent years which have increased our penetration into our primary markets and expanded
our presence in new markets. We acquired a controlling interest in FRE in late 2004. FRE is
based in Taiwan and manufactures connector products, including single and multiple-port jacks, and
supplies such products to Pulse under a cooperation agreement. LK was acquired in September 2005
for approximately $111.1 million, net of cash acquired and including acquisition costs and the consideration
resulting from an earn-out provision. LK is based in Kempele, Finland, and is a producer of internal
antennas and integrated modules for mobile communications and information devices. ERA was acquired
in January 2006 for approximately $53.4 million, net of cash acquired and including acquisition costs.
ERA is based in Herrenberg, Germany and is a leading producer of electronic coils and transformers
primarily for the European automotive, heating/ventilation/air conditioning and appliance markets.
We purchased Larsen from Radiall Incorporated in December 2006. Larsen is headquartered in Vancouver,
Washington and manufactures advanced antenna systems for non-cellular wireless and automotive applications.
We will continue to pursue additional growth opportunities. |
Divestiture. In 2005, we received approximately $6.7 million for the sale of AMI Doducos bimetal
and metal cladding operations. We have reflected the results of the bimetal and metal cladding operations
as discontinued operations on the Consolidated Statements of Operations for all periods presented.
Technology. Our business is continually affected by changes in technology, design, and preferences
of consumers and other end users of our products, as well as changes in regulatory requirements.
We address these changes by continuing to invest in new product development and by maintaining a
diverse product portfolio which contains both mature and emerging technologies in order to meet customer
demands.
Management Focus. Our executives focus on a number of important factors in evaluating our financial condition
and operational performance. For example, we use economic profit, which we define as operating profit
after tax less our cost of capital on employed resources, revenue growth, gross profit as a percentage
of revenue, and operating profit as a percent of revenue. Operating leverage or incremental operating
profit as a percentage of incremental sales is a factor that is discussed frequently, as this is
believed to reflect the benefit of absorbing fixed overhead and operating expenses. In evaluating
working capital management, liquidity and cash flow, our executives also use performance measures
such as days sales outstanding, days payable outstanding, inventory turnover and cash conversion
efficiency. The continued success of our business is largely dependent on meeting and exceeding our
customers expectations. Therefore, non-financial performance measures relating to on-time delivery
and quality assist our management in monitoring customer satisfaction on an on-going basis.
Cost Reduction Programs. As a result of our focus on both economic and operating profit, we will aggressively size both Pulse
and AMI Doduco so that costs are optimally matched to current and anticipated future revenues and
unit demand. We continue to engage in a succession of cost reduction initiatives and programs. The
amounts of additional charges will depend on specific actions taken. The actions taken over the past
several years such as plant closures, plant relocations, asset impairments and reduction in personnel
at the affected locations have resulted in the elimination of a variety of costs. The majority of
these costs represent the annual salaries and benefits of terminated employees, both those directly
related to manufacturing and those providing selling, general and administrative services, as well
as lower overhead costs related to factory relocations to lower-cost locations. The eliminated costs
also include depreciation savings from disposed equipment.
In the year ended December 29, 2006, we accrued $8.8 million for a number of actions to further streamline
operations at Pulse and AMI Doduco. These include severance and related payments to manufacturing
and support personnel of $6.8 million and $2.0 million to write down the value of certain fixed assets
to their disposal values. The majority of these accruals will be paid by March 30, 2007, except for
remaining lease or severance payments to be made over a specified term.
In the year ended December 30, 2005, we accrued $7.0 million for a number of actions to streamline
operations at Pulse and AMI Doduco. These include $4.4 million related to the termination of
manufacturing
and support personnel and $2.6 million to writedown the value of certain fixed
assets to their
disposal
values. The majority of these accruals were paid by March 31, 2006,
except for remaining
lease or
severance payments to be made over a specified term. Additionally,
we recorded a $46.0
million impairment
charge of Pulse consumer division assets consisting of
$25.6 million of goodwill,
$11.5 million of
identifiable intangibles, and $8.9 million of property,
plant, and equipment.
These impairments resulted
from updated cash flow projections which reflect
the shift of production
by Pulse to China-based
locations, decreasing average selling prices
for television transformers
resulting from competition
with Asian companies selling in U.S. dollars,
and the recent weakness
in the European television
market for flyback transformers.
In the year ended December 31, 2004, we accrued $9.0 million which included severance and related payments
of $7.5 million to terminate manufacturing and support personnel and $1.5 million to write down the
value of certain fixed assets to their disposal values. The vast majority of these accruals were
utilized by the end of the second quarter in 2005. Additionally we recorded an intangible asset impairment
of $18.9 million related to acquired intangibles. These intangible asset impairments resulted from
updated cash flow projections relating to technology and customer relationships, and reflect, among
other things, shifting product mixes, changes among major customers and continuing pressures on selling
prices in the consumer and telecommunication product divisions of the Pulse segment.
International Operations. As of December 29, 2006, we had manufacturing operations in 10 countries and had no significant
net sales in currencies other than the U.S. dollar, the euro and the Chinese renminbi. A large percentage
of our sales in recent years have been outside of the United States. Changing exchange rates often
impact our financial results and our period-over-period comparisons. This is particularly true of
movements in the exchange rate between the U.S. dollar, renminbi and the euro. AMI Doducos
European and Pulses consumer and automotive division sales are denominated primarily in
euro. Pulses antenna division sales are denominated primarily in euro and renminbi. Sales and
earnings denominated in currencies other than the U.S. dollar may result in higher or lower dollar
sales and net earnings upon translation for our U.S. consolidated financial statements. We may also
experience a positive or negative |
translation adjustment to equity because our investments in Pulses consumer, antenna and automotive
divisions and AMI Doducos European operations may be worth more or less in U.S. dollars
after translation for our U. S. consolidated financial statements. Foreign currency gains or losses
may also be incurred when non-functional currency -denominated transactions are remeasured to an
operations functional currency for financial reporting purposes. If a higher percentage of
our sales is denominated in non-U.S. currencies, increased exposure to currency fluctuations may result.
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, purchases
and net assets or liabilities denominated in local currencies, the type of currency, and the costs
associated with the contracts. As of December 29, 2006, we did not have any forward contracts or
currency options in place.
Precious
Metals. AMI Doduco uses silver, as well as other precious metals, in manufacturing some of its electrical
contacts, contact materials and contact subassemblies. Historically, we have leased or held these
materials through consignment-type arrangements with our suppliers. Leasing and consignment costs
have typically been below the costs to borrow funds to purchase the metals, and more importantly,
these arrangements eliminate the effects of fluctuations in the market price of owned precious metal
and enable us to minimize our inventories. AMI Doducos terms of sale generally allow us to
charge customers for precious metal content based on market value of precious metal on the day after
shipment to the customer. 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 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. Leasing/consignment fee increases are caused by increases in interest rates or volatility
in the price of the consigned material.
Income
Taxes. Our effective income tax rate is affected by the proportion of our income earned in high-tax
jurisdictions such as those in Europe and the income earned in low-tax jurisdictions, particularly
Tunisia and the Peoples Republic of China. This mix of income can vary significantly from one
period to another. We have benefited over recent years from favorable tax incentives, however, there
is no guarantee as to how long these benefits will continue to exist.
Except in limited circumstances, we have not provided for U.S. federal income and foreign withholding
taxes on our non-U.S. subsidiaries undistributed earnings as per APB No. 23. Such earnings may include pre-acquisition earnings of foreign entities acquired through stock
purchases, and are intended to be reinvested outside of the U.S. indefinitely. Where excess cash
has accumulated in our non-U.S. subsidiaries and it is advantageous for tax reasons, subsidiary earnings
may be remitted.
Results of Operations
Year ended December 29, 2006 compared to the year ended December 30, 2005
Net Sales. Net sales for the year ended December 29, 2006 increased $337.7 million, or 54.8%, to $954.1 million
from $616.4 million in the year ended December 30, 2005. Our sales increase from 2005 was primarily
attributable to the inclusion of a full year of antenna division net sales, the addition of automotive
division net sales beginning in January 2006 and higher pass-through costs of precious and non-precious
metals at AMI Doduco.
Pulses net sales increased $265.9 million, or 73.5%, to $627.5 million for the year ended December
29, 2006 from $361.6 million in the year ended December 30, 2005. Pulse sales benefited from the
inclusion of antenna division net sales for a full year and automotive division sales from the time
of acquisition in January 2006. In addition, Pulses net sales in 2006 increased as compared
to 2005 as a result of higher net sales in the networking, telecommunications and power conversion
businesses.
AMI Doducos net sales increased $71.8 million, or 28.2%, to $326.6 million for the year ended
December 29, 2006 from $254.8 million in the year ended December 30, 2005. This was primarily a result
of higher prices for silver and other precious and non-precious metals which were passed on to customers
and, to a lesser extent, increased global demand.
Cost of Sales. Our cost of sales increased $261.5 million, or 55.2%, to $735.0 million for the year ended
December 29, 2006 from $473.5 million for the year ended December 30, 2005 primarily due to higher
net sales. |
Included in cost of sales for the year-ended December 29, 2006 is approximately $5.0 million of accelerated
depreciation related to equipment taken out of service before the end of its originally intended
useful life. Our consolidated gross margin for the year ended December 29, 2006 was 23.0%, compared
with 23.2% in the year ended December 30, 2005.
Selling, General and Administrative Expenses. Total selling, general and administrative expenses for the year ended December 29, 2006 increased
$32.2 million to $139.0 million from $106.8 million for the year ended December 30, 2005. The increase
in expense for the year ended December 29, 2006 is primarily a result of the inclusion of Pulse antenna
division and automotive division spending in the 2006 period. As a percentage of net sales, selling,
general and administrative expenses was 14.6% in the year ended December 29, 2006 versus 17.3% in
the comparable period of 2005, or a decrease of 2.7% of net sales. Decreased spending as a percentage
of net sales was a result of an overall leveraging of operating costs across a larger sales base.
Additionally, the restructuring actions that we took over the past year to reduce costs contributed
to lower operating expenses as a percentage of net sales.
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 year ended
December 29, 2006 and December 30, 2005 respectively, RD&E by segment was as follows (dollars in thousands): |
|
|
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
Pulse |
$ |
35,045 |
|
$ |
21,359 |
|
|
|
Percentage of segment sales |
|
5.6 |
% |
|
5.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
AMI Doduco |
$ |
4,540 |
|
$ |
4,137 |
|
|
|
Percentage of segment sales |
|
1.4 |
% |
|
1.6 |
% |
|
|
Higher RD&E spending in 2006 at Pulse is attributable to activities at the Pulse antenna and automotive
divisions since their acquisition dates. As a percentage of sales, RD&E spending was lower in
2006 then in 2005. Strong end-user demand at Pulse and AMI Doduco, as well as higher pass-through
costs of silver and other metals at AMI Doduco, resulted in increased sales that were greater on
a percentage basis then increases in RD&E spending. We believe that future sales in the electronic
components markets will be driven by next-generation products. Design and development activities
with our OEM customers continued at an aggressive pace during 2006 and into 2007.
Severance and Asset Impairment Expense. Total severance and asset impairment expense for the year ended December 29, 2006 decreased
$44.2 million, to $8.8 million from $53.0 million for the year ended December 30, 2005. The decrease
in the 2006 period is primarily attributable to $46.0 million of asset impairments related to the
Pulse consumer division which were recognized in the 2005 period.
In the year ended December 29, 2006, we accrued $8.8 million for a number of actions to further streamline
operations at Pulse and AMI Doduco. These include severance and related payments of $6.8 million
to manufacturing and support personnel and $2.0 million to write down the value of certain fixed
assets to their disposal values. The majority of these accruals will be paid by March 30, 2007, except
for remaining lease or severance payments to be made over a specified term.
In the year ended December 30, 2005, we accrued $7.0 million for a number of actions to streamline
operations at Pulse and AMI Doduco. These include $4.4 million related to the termination of
manufacturing
and support personnel and $2.6 million to writedown the value of certain fixed
assets to their
disposal
values. The majority of these accruals were paid by March 31, 2006,
except for remaining
lease or
severance payments to be made over a specified term. Additionally,
we recorded a $46.0
million impairment
charge of Pulse consumer division assets consisting of
$25.6 million of goodwill,
$11.5 million of
identifiable intangibles, and $8.9 million of property,
plant, and equipment.
These impairments resulted
from updated cash flow projections which reflect
the shift of production
by Pulse to China-based
locations, decreasing average selling prices
for television transformers
resulting from competition
with Asian companies selling in U.S. dollars,
and the recent weakness
in the European television
market for flyback transformers.
Interest. Net interest expense was $5.3 million for the year ended December 29, 2006 compared to net
interest income of $1.4 million for the year ended December 30, 2005. The increase in interest expense
in the 2006 period is primarily attributable to higher precious metal leasing costs, expenses resulting
from increased average borrowings from our multi-currency credit facility and a lower balance of
invested cash in the 2006 period as compared to 2005. Recurring aggregate components of interest
expense, such as bank commitment fees, approximated those of 2005.
Other Income (Expense). Other income (expense) was $4.1 million of income for the year ended December 29, 2006 versus
$1.7 million of expense for the year ended December 30, 2005. The change is primarily attributable
to foreign exchange gains of approximately $3.9 million in the 2006 period as compared to foreign
exchange losses of |
approximately $2.2 million in the 2005 period. On average, the euro to US dollar exchange rate increased
during 2006 whereas it decreased during 2005. This factor, along with increased international activity
in 2006, resulted in an overall increase of foreign exchange gains.
Income Taxes. The effective income tax rate for the year ended December 29, 2006 was 16.7% compared to (35.5%)
for the year ended December 30, 2005. The tax rate in 2006 reflects a higher proportion of income
being attributable to low-tax jurisdictions. In 2005, the non-deductibility of the Pulse consumer
division impairment charge, a $7.3 million charge related to the Section 965 dividend and the effect
of non-deductible restructuring expenses in high-tax jurisdictions negatively impacted the tax rate.
Minority Interest. Minority interest was $1.5 million for the year ended December 29, 2006 versus $0.9 million
for the year ended December 30, 2005. The increase in minority interest expense was due to the improved
financial performance of FRE, which was offset by our increased ownership percentage of FRE in the
2006 period as compared to 2005.
Results of Operations
Year ended December 30, 2005 compared to the year ended December 31, 2004
Net Sales. Net sales for the year ended December 30, 2005 increased $55.1 million, or 9.8%, to $616.4 million
from $561.3 million in the year ended December 31, 2004. Our sales increase from 2004 was primarily
attributable to the inclusion of LK Products Oy (LK) net sales from the time of acquisition
in September 2005, the inclusion of Full Rise Electronic Co., Ltd. (FRE) net sales from
the time we acquired a controlling interest in September 2004, and to improvement in the markets
for AMI Doduco. Pulses increase in net sales also reflects the inclusion of LKs net sales
from the time of acquisition in September 2005 and FREs net sales from the time we acquired
a controlling interest in September 2004. AMI Doducos increase in net sales was primarily due
to higher prices for precious and non-precious metals, as well as stronger economic growth and successes
in AMI Doducos efforts to increase its market share.
Pulses net sales increased $41.4 million, or 12.9%, to $361.6 million for the year ended December
30, 2005 from $320.2 million in the year ended December 31, 2004. Pulse sales benefited from the
inclusion of LKs net sales from the time of acquisition in September 2005 and FREs net
sales for twelve months of 2005. However, sales derived from the consumer division (which are denominated
in euros) were lower than in the 2004 period. Additionally, revenues from networking, telecommunications,
power conversion and military/aerospace markets were lower overall in 2005 than in 2004.
AMI Doducos net sales increased $13.7 million, or 5.7%, to $254.8 million for the year ended
December 30, 2005 from $241.1 million in the year ended December 31, 2004. The sales benefited from
higher prices for precious and non-precious metals which were passed on to customers. Sales in the
2005 period reflect improving demand in North America and Europe, and were also favorably affected
by certain increases related to new long-term contracts with major customers.
Cost of Sales. Our cost of sales increased $57.5 million, or 13.8%, to $473.5 million for the year ended
December 30, 2005 from $416.0 million for the year ended December 31, 2004 primarily due to higher
net sales. Our consolidated gross margin for the year ended December 30, 2005 was 23.2%, compared
with 25.9% in the year ended December 31, 2004. Our consolidated gross margin in 2005 was negatively
affected by: |
|
|
|
decreased gross margin on Pulse consumer division sales, which was negatively impacted by the continuing
weak U.S. dollar relative to the euro and lower demand for television sets in Europe; |
|
|
|
|
|
increases in statutory minimum wages and social costs in China; and |
|
|
|
|
|
higher costs for pass through materials at AMI Doduco. |
|
These negative impacts on gross margin were partially offset by the higher capacity utilization at
Pulse and AMI Doduco in 2005 versus 2004.
Selling, General and Administrative Expenses. Total selling, general and administrative expenses for the year ended December 30, 2005 decreased
$1.8 million to $106.8 million from $108.6 million for the year ended December 31, 2004. As a percentage
of net sales, selling, general and administrative expenses was 17.3% in the year ended December 30,
2005 versus 19.3% in the comparable period, or a decrease of 2.0% of net sales. Decreased spending
was a result of decreased variable costs such as selling expense and incentive compensation expense,
and fixed costs such as intangible amortization. These expenses were partially offset by increased
research, development and engineering expense, the inclusion of FRE for the full year of 2005 and
the inclusion of LK since the time of acquisition in |
September 2005. Incentive compensation expense and intangible amortization expense, in particular,
were $2.6 million and $2.4 million lower, respectively, in 2005 versus the comparable period in 2004.
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 year ended
December 30, 2005 and December 31, 2004 respectively, RD&E by segment was as follows (dollars in thousands): |
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
Pulse |
$ |
21,359 |
|
$ |
18,420 |
|
|
|
Percentage of segment sales |
|
5.9 |
% |
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
AMI Doduco |
$ |
4,137 |
|
$ |
4,080 |
|
|
|
Percentage of segment sales |
|
1.6 |
% |
|
1.7 |
% |
|
|
Higher RD&E spending in 2005 at Pulse includes additional investments in our China Development
Center, inclusion of FRE RD&E beginning in September 2004, the inclusion of LK beginning in September
2005 and higher U.S. dollar reported spending of RD&E expenses incurred in euros. We believe
that future sales in the electronic components markets will be driven by next-generation products.
Design and development activities with our OEM customers continued at an aggressive pace during 2004
and into 2005.
Severance and Asset Impairment Expense. Total severance and asset impairment expense for the year ended December 30, 2005 increased
$25.1 million, to $53.0 million from $27.9 million for the year ended December 31, 2004. The increase
in the 2005 period is primarily attributable to $46.0 million of asset impairments related to the
Consumer Division.
In the year ended December 30, 2005, we accrued $7.0 million for a number of actions to streamline
operations at Pulse and AMI Doduco. These include $4.4 million related to the termination of
manufacturing
and support personnel and $2.6 million to writedown the value of certain fixed
assets to their
disposal
values. The majority of these accruals were paid by March 31, 2006,
except for remaining
lease or
severance payments to be made over a specified term. Additionally,
we recorded a $46.0
million impairment
charge of Pulse consumer division assets consisting of
$25.6 million of goodwill,
$11.5 million of
identifiable intangibles, and $8.9 million of property,
plant, and equipment.
These impairments resulted
from updated cash flow projections which reflect
the shift of production
by Pulse to China-based
locations, decreasing average selling prices
for television transformers
resulting from competition
with Asian companies selling in U.S. dollars,
and the recent weakness
in the European television
market for flyback transformers.
In the year ended December 31, 2004, we accrued $9.0 million which included severance and related payments
of $7.5 million to terminate manufacturing and support personnel and $1.5 million to write down
the
value of certain fixed assets to their disposal values. The vast majority of these accruals
were
utilized by the end of the second quarter in 2005. Additionally, we recorded an intangible
asset
impairment of $18.9 million related to acquired intangibles. These intangible asset impairments
resulted
from updated cash flow projections relating to technology and customer relationships,
and reflect,
among other things, shifting product mixes, changes among major customers and continuing
pressures
on selling prices in the consumer and telecommunication product divisions of the Pulse segment.
Interest. Net interest income was $1.4 million for the year ended December 30, 2005 compared to net interest
expense of $0.3 million for the year ended December 31, 2004. The higher average balance of invested
cash in 2005 over the comparable period in 2004, combined with a higher interest income yield, resulted
in higher interest income. Partially offsetting the increase in interest income was an increase in
interest expense related to outstanding borrowings from our credit facility and the inclusion of
FREs interest expense. Recurring aggregate components of interest expense, such as silver leasing
fees, interest on bank debt and bank commitment fees, approximated those of 2004.
Other (Expense) Income. Other (expense) income was $1.7 million of expense for the year ended December 30, 2005 versus
$2.0 million of income for the year ended December 31, 2004. The change is primarily attributable
to a gain of $1.1 million related to the settlement of equity rights arising from the 2001 acquisition
of the Engelhard-CLAL electrical contacts business by AMI Doduco during the year ended December 31,
2004 and foreign exchange losses were $2.2 million higher in 2005 than in 2004.
Equity Earnings in Minority-Owned Investments. Equity earnings in minority-owned investments were $0.8 million for the year ended December
31, 2004. Since we acquired control of FRE in September 2004, we consolidate FREs results,
and we no longer record equity earnings from FRE. Rather, the full consolidation of FRE and related
minority interest expense is reflected in our financial statements beginning in the year ended December
30, 2005. |
Income Taxes. The effective income tax rate for the year ended December 30, 2005 was (35.5%) compared to 31.3%
for the year ended December 31, 2004. The 2005 effective rate is based on a $6.2 million provision
on a $17.3 million loss, versus a $3.5 million provision on $11.3 million profit in 2004. The tax
rate in 2005 reflects a higher proportion of income being attributable to high-tax jurisdictions,
the impact of non-deductible restructuring expenses in high-tax jurisdictions, a $7.3 million charge
related to the Section 965 dividend and the tax effects of intangible asset impairments.
Minority Interest. Minority interest was $0.9 million of expense for the year ended December 30, 2005 versus
$0.7 million for the year ended December 31, 2004. Since the date we acquired control of FRE on September
13, 2004, we began consolidating FREs results with our own.
Liquidity and Capital Resources
Working capital as of December 29, 2006 was $189.0 million, compared to $209.8 million as of December
30, 2005. This decrease of $20.8 million was primarily due to decreases in cash and cash equivalents,
which was partially offset by increases in trade receivables and inventories. Cash and cash equivalents,
which are included in working capital, decreased from $173.7 million as of December 30, 2005 to $87.2
million as of December 29, 2006 primarily due to acquisition-related uses detailed below. Our working
capital was impacted by the addition of ERA as of the acquisition date in January 2006.
We present our statement of cash flows using the indirect method as permitted under Financial Accounting
Standards Board Statement No. 95, Statement of Cash Flows. Our management has found that investors and analysts typically refer to changes in accounts receivable,
inventory, and other components of working capital when analyzing operating cash flows. Also, changes
in working capital are more directly related to the way we manage our business for cash flow than
are items such as cash receipts from the sale of goods, as would appear using the direct method.
Net cash provided by operating activities was $78.5 million for the year ended December 29, 2006 and
$44.6 million in the comparable period of 2005, an increase of $33.9 million. This increase was primarily
attributable to higher net earnings from continuing operations, excluding intangible asset impairments
and losses on disposal of fixed assets, if any.
Capital expenditures were $25.4 million during the year ended December 29, 2006 and $16.3 million in
the comparable period of 2005. The increase of $9.1 million in the 2006 period compared to 2005 was
due primarily to expenditures at the Pulse antenna and automotive divisions partially offset by lower
expenditures at FRE. We make capital expenditures to expand production capacity and to improve our
operating efficiency. We plan to continue making such expenditures in the future as and when necessary.
We used $91.8 million for acquisitions during the year ended December 29, 2006 and $90.0 million for
acquisitions during year ended December 30, 2005, net of cash acquired in both years. The 2006 expenditures
relate to our acquisition of ERA in January 2006, a payment related to our acquisition of LK, additional
investments in FRE and to our acquisition of Larsen. The 2005 expenditures related to the acquisition
of LK in September 2005 and an additional investment in FRE. We may acquire other businesses or product
lines to expand our breadth and scope of operations.
We used $14.2 million for dividend payments during the year ended December 29, 2006. On October 31,
2006 we announced a quarterly cash dividend of $0.0875 per common share, payable on January 19, 2007
to shareholders of record on January 5, 2007. This quarterly dividend will result in a cash payment
to shareholders of approximately $3.5 million in the first quarter of 2007. We paid cash dividends
of $10.6 million during the year ended December 30, 2005. We expect to continue making quarterly
dividend payments for the foreseeable future.
We entered into a credit agreement on October 14, 2005 providing for $200.0 million of credit capacity.
The facility consists of an aggregate U.S. dollar-equivalent revolving line of credit in the principal
amount of up to $200.0 million, and provides for borrowings in multiple currencies including but
not limited to, U.S. dollars, euros, and Japanese yen, including individual sub-limits of: |
|
|
|
a U.S. dollar-based swing-line loan not to exceed $20.0 million; |
|
|
|
|
|
a multicurrency facility providing for the issuance of letters of credit in an aggregate amount not
to exceed the U.S. dollar equivalent of $25.0 million; and |
|
|
|
|
|
a Singapore sub-facility not to exceed the U.S. dollar equivalent of $50.0 million. |
|
The credit agreement permits us to request one or more increases in the total commitment not to exceed
$100.0 million, provided the minimum increase is $25.0 million, subject to bank approval. |
The total amount outstanding under the credit facility may not exceed $200.0 million, provided we do
not request an increase in total commitment as noted above.
Outstanding borrowings are subject to two financial covenants, which are both computed on a rolling
twelve-month basis as of the most recent quarter-end. The first is maximum debt outstanding amounting
to three and one-half times our earnings before interest, taxes, depreciation and amortization (EBITDA),
as defined by the credit agreement. The second is maximum debt service expenses amounting to two
and one-half times our cash interest expense, as defined by the credit agreement. The credit agreement
also contains covenants specifying capital expenditure limitations and other customary and normal
provisions. We are in compliance with these covenants as of December 29, 2006.
As of December 29, 2006, we had $50.6 million of outstanding borrowings under this five-year revolving
credit agreement, primarily to fund acquisitions. Our total credit available, including standby letters
of credit, as of December 29, 2006 was approximately $148.0 million. Please refer to Note 7 in the
Notes to Consolidated Financial Statements.
We pay a commitment fee on the unborrowed portion of the commitment, which ranges from 0.15% to 0.25%
of the total commitment, depending on our debt-to-EBITDA ratio, as defined above. The interest rate
for each currencys borrowing will be a combination of the base rate for that currency plus
a credit margin spread. The base rate is different for each currency. The credit margin spread is
the same for each currency and is 0.60% to 1.25%, depending on our debt-to-EBITDA ratio, as defined
in the credit agreement. Each of our domestic subsidiaries with net worth equal to or greater than
$10 million has guaranteed all obligations incurred under the credit facility.
Simultaneously with the execution of our current credit agreement, we terminated our previous $125.0
million credit agreement, dated June 17, 2004.
We also have an obligation outstanding due in August 2009 under an unsecured term loan agreement in
Germany for the borrowing of approximately 5.1 million euros.
At December 29, 2006, we included $1.8 million of outstanding debt of Full Rise Electronic Co., Ltd.
in connection with our consolidation of FREs financial statements. FRE has a total credit
limit
of approximately $3.2 million in U.S. dollar equivalents as of December 29, 2006. Neither
Technitrol,
nor any of its wholly-owned subsidiaries, has guaranteed or otherwise participated
or assumed any
responsibility for the current or future indebtedness of FRE.
We had four standby letters of credit outstanding at December 29, 2006 in the aggregate amount of $1.4
million securing transactions entered into in the ordinary course of business.
We had commercial commitments outstanding at December 29, 2006 of approximately $135.8 million due
under precious metal consignment-type leases. This represents an increase of $48.0 million from the
$87.8 million outstanding as of December 30, 2005 and is attributable to volume increases and higher
average silver prices during 2006.
As of December 29, 2006, future payments related to contractual obligations were as follows (in thousands): |
|
|
|
Amounts expected to be paid by period |
|
|
|
|
Total |
|
Less than 1 year |
|
1 to 3 years |
|
3 to 5 years |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
$ |
59,162 |
|
$ |
1,831 |
|
$ |
6,750 |
|
$ |
50,581 |
|
$ |
|
|
|
|
Operating leases |
|
31,167 |
|
|
10,131 |
|
|
13,179 |
|
|
3,904 |
|
|
3,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
90,329 |
|
$ |
11,962 |
|
$ |
19,929 |
|
$ |
54,485 |
|
$ |
3,953 |
|
|
|
We believe that the combination of cash on hand, cash generated by operations and, if necessary, borrowings
under our credit agreement will be sufficient to satisfy our operating cash requirements in the foreseeable
future. In addition, we may use internally generated funds or obtain borrowings or additional equity
offerings for acquisitions of suitable businesses or assets. 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
foreign governments require for international cash transfers may delay our internal cash movements
from time to time. 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. We
have not accrued U.S. income and foreign withholding taxes on foreign earnings that have been indefinitely
invested abroad. If these earnings were brought back to the United States, significant tax liabilities
could be incurred in the United States as several countries in which we operate have tax rates significantly
lower than the U.S. statutory rate. |
All retained earnings are free from legal or contractual restrictions as of December 29, 2006, with
the exception of approximately $21.4 million of retained earnings primarily in the PRC, that are
restricted in accordance with Section 58 of the PRC Foreign Investment Enterprises Law. Included
in the $21.4 million is $2.2 million of retained earnings of FRE of which we own approximately 71%.
The amount restricted in accordance with the PRC Foreign Investment Enterprise Law is applicable
to all foreign investment enterprises doing business in the PRC. The restriction applies to 10% of
our net earnings in the PRC, limited to 50% of the total capital invested in the PRC. |
|
In October 2004, the American Jobs Creation Act of 2004 (AJCA) was signed into law. The
AJCA contained a series of provisions, several of which are pertinent to us. The AJCA created a temporary
incentive for U.S. multi-national corporations to repatriate accumulated income abroad by providing
an 85% dividends received deduction for certain dividends from controlled foreign corporations. Based
on this legislation and 2005 guidance by the Department of Treasury, the Company repatriated $52.0
million of foreign earnings, net of $7.3 million of income taxes. Prior to the passage of the AJCA,
the undistributed earnings of our foreign subsidiaries, with the exception of approximately $40.0
million, were considered to be indefinitely reinvested, and in accordance with APB Opinion No. 23
(APB 23), Accounting for Income Taxes - Special Areas, no provision for U.S. federal
or state income taxes had been provided on these undistributed earnings. As of December 29, 2006,
the remaining offshore earnings, with the exception of approximately $40.0 million, are intended to
be indefinitely invested abroad and no provision for U.S. federal or state income taxes has been
provided in accordance with APB 23. |
|
New Accounting Pronouncements |
|
In September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 123(R) (SFAS 158). This standard requires employers to recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive income. Additionally,
SFAS 158 requires employers to measure the funded status of a plan as of the date of its year-end
statement of financial position. The new reporting requirements and related new footnote disclosure
rules of SFAS 158 are effective for fiscal years ending after December 15, 2006. Adoption of the
standard resulted in a decrease in other assets of approximately $0.8 million, a decrease in deferred income taxes of $0.6 million, a decrease in other
long-term liabilities of approximately $2.4 million and an increase to accumulated other comprehensive
income of approximately $1.0 million, net of tax. |
|
In September 2006,
the FASB issued Statement No. 157, Fair Value Measurements (SFAS 157). This statement defines fair value, establishes a framework for measuring fair
value in GAAP, and enhances disclosures about fair value measurements. SFAS 157 applies when other
accounting pronouncements require fair value measurements; it does not require new fair value measurements.
We are required to adopt this statement starting in 2008 and we are currently evaluating the effect
that SFAS 157 will have on our consolidated financial statements. |
|
In
July 2006, FASB issued its Interpretation No. 48, Accounting for Uncertainty in Income Taxes -an interpretation of FASB Statement No. 109, (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in
an entitys financial statements in accordance with Statement No. 109, Accounting for Income Taxes. This interpretation prescribes a minimum recognition threshold (more likely than not or greater than
50 percent) and measurement attributes for financial statement disclosure of tax positions taken
or expected to be taken on a tax return or otherwise. We are required to adopt this interpretation
in the first quarter of fiscal year 2007. We are currently evaluating the requirements of FIN 48
and have not yet determined the impact, if any, on our consolidated financial statements. |
|
In November 2005, the FASB issued FASB Staff Position (FSP) SFAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-based Payment Awards, that provides an elective alternative transition method of calculating the pool of excess tax benefits
available to absorb tax deficiencies recognized subsequent to the adoption of SFAS No. 123(R) to
the method otherwise required by paragraph 81 of SFAS No. 123(R). We have elected to adopt the alternative
method provided in this FASB Staff Position for purposes of calculating the pool of excess tax benefits
available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123(R). |
|
In
December 2004, the FASB issued Statement No. 123(R), Share-Based Payment, (SFAS 123(R)), which amends SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) requires compensation expense to be recognized for all share-based payments made
to employees based on the fair value of the award at the date of grant, eliminating the intrinsic
value alternative allowed by SFAS 123. Generally, the approach to determining fair value under the
original pronouncement has not changed, however, there are revisions to the accounting guidelines
established, such as accounting for forfeitures. SFAS 123(R) became effective at the beginning of
our fiscal 2006. Adoption of this standard resulted in $0.1 million of income recognized as a cumulative
effect of accounting change in the year ended December 29, 2006. |
Item 7a Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our financial instruments, including cash and cash equivalents and long-term debt, are exposed to
changes in interest rates in both the U.S. and abroad. We invest our excess cash in short-term, investment-grade
interest-bearing securities. We generally limit our exposure to any one financial institution to
the extent practical. Our board has adopted policies relating to these risks and continually monitors
compliance with these policies.
Our
existing credit facility has variable interest rates. Accordingly, interest expense may increase
if we borrow and if the rates associated with our borrowings move higher. In addition, we may pursue
additional or alternative financing for growth opportunities in one or both 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 of these instruments to date.
The table below presents principal amounts in U.S. dollars (or equivalent U.S. dollars with respect
to non-U.S. denominated debt) and related weighted average interest rates by year of maturity for
our debt obligations. The column captioned Approximate Fair Value sets forth the carrying
value of our long-term debt as of December 29, 2006. As the majority of our long-term borrowings
are subject to variable interest rates, we estimate that the carrying amount of our variable rate
long-term debt approximates fair value (dollars in thousands): |
|
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
There-
After |
|
Total |
|
Approx.
Fair
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renminbi (1) |
$ |
1,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,771 |
|
$ |
1,771 |
|
Weighted average interest rate |
|
5.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro (1) |
$ |
|
60 |
|
|
|
$ |
6,750 |
|
|
|
|
|
|
|
|
|
|
$ |
6,810 |
|
$ |
6,848 |
|
Weighted average interest rate |
|
9.02 |
% |
|
|
|
|
5.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar |
|
|
|
|
|
|
|
|
|
$ |
25,500 |
|
|
|
|
|
|
|
$ |
25,500 |
|
$ |
25,500 |
|
Euro (1) |
|
|
|
|
|
|
|
|
|
$ |
25,081 |
|
|
|
|
|
|
|
$ |
25,081 |
|
$ |
25,081 |
|
Weighted average interest rate |
|
|
|
|
|
|
|
|
|
|
5.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) U.S. dollar equivalent
Foreign Currency Risk
As
of December 29, 2006, substantially all of our cash was denominated in currencies other than the
U.S. dollar. We conduct business in various foreign currencies, including those of emerging market
countries in Asia as well as European countries. We may utilize derivative financial instruments,
primarily forward exchange contracts in connection with fair value hedges, to manage foreign currency
risks. In accordance with SFAS 133, gains and losses related to fair value hedges are recognized
in income along with adjustments of carrying amounts of the hedged items. Therefore, all of our forward
exchange contracts are marked-to-market, and unrealized gains and losses are included in current
period net income. These contracts guarantee a predetermined rate of exchange at the time the contract
is purchased. This would allow us to shift the majority of the risk of currency fluctuations from
the date of the contract to a third party for a fee. We believe there could be two potential risks
of holding these instruments. The first is that the foreign currency being hedged could move in a
direction which could create a better economic outcome than if hedging had not taken place. The second
risk is that the counterparty to a currency hedge defaults on its obligations. In the past, we reduced
the risk of counterparty default by entering into relatively short-term hedges with well capitalized
and highly rated banks. In determining the use of forward exchange contracts, we would consider the
amount of sales and purchases made in local currencies, the type of currency and the costs associated
with the contracts. As of December 29, 2006, we had no foreign currency forward contracts outstanding.
However, we did utilize foreign currency forwards during the year ended December 29, 2006.
The table below provides information about our other non-derivative, non-U.S. dollar denominated financial
instruments and presents the information in equivalent U.S. dollars. Amounts set forth under Liabilities
represent |
principal amounts and related weighted average interest rates by year of maturity for our foreign currency
debt obligations. The column captioned Approximate Fair Value sets forth the carrying
value of our foreign currency long-term debt as of December 29, 2006. As the majority of our long-term
borrowings are subject to variable interest rates, we estimate that the carrying amount of our variable
rate long-term debt approximates fair value. (dollars in thousands): |
|
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
There-
After |
|
Total |
|
Approx.
Fair
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renminbi (1) |
$ |
31,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31,501 |
|
$ |
31,501 |
|
Euro (1) |
$ |
29,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
29,701 |
|
$ |
29,701 |
|
Other currencies (1) |
$ |
2,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,387 |
|
$ |
2,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renminbi(1) |
$ |
1,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,771 |
|
$ |
1,771 |
|
Weighted average interest rate |
|
5.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro (1) |
$ |
60 |
|
|
|
|
$ |
6,750 |
|
|
|
|
|
|
|
|
|
|
$ |
6,810 |
|
$ |
6,848 |
|
Weighted average interest rate |
|
9.02 |
% |
|
|
|
|
5.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro (1) |
|
|
|
|
|
|
|
|
|
$ |
25,081 |
|
|
|
|
|
|
|
$ |
25,081 |
|
$ |
25,081 |
|
Weighted average interest rate |
|
|
|
|
|
|
|
|
|
|
4.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
U.S. dollar equivalent |
|
Item 8 Financial Statements and Supplementary Data
Information
required by this item is incorporated by reference from the Report of Independent Registered Public
Accounting Firm on page 37 and from the consolidated financial statements and supplementary schedule
on pages 38 through 63.
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None
Item 9a Controls and Procedures
Controls and Procedures
Based
on their evaluation as of December 29, 2006, our Chief Executive Officer and Chief Financial Officer,
have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended) were effective to ensure that information
required to be disclosed by us in the reports that we file or submit is recorded, processed, summarized
and reported, within the time periods specified in the Commissions rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files or submits under the
Act is accumulated and communicated to the issuers management, including its principal executive
and principal financial officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
Managements Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our
management assessed the effectiveness of our internal control over financial reporting as of December
29, 2006. In making this assessment, our management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway |
Commission (COSO) in Internal Control-Integrated Framework. Our management has concluded
that, as of December 29, 2006, our internal control over financial reporting is effective based on
these criteria. On January 4, 2006, the Company acquired all of the capital stock of the ERA Group
(ERA). Management excluded from its assessment of the effectiveness of the Companys
internal control over financial reporting as of December 29, 2006, ERAs internal control over
financial reporting, as of and for the year ended December 29, 2006. ERAs total assets were
$92 million as of December 29, 2006 and total revenues were $92 million for the year ended December
29, 2006. Our independent registered public accounting firms, KPMG, LLP, audit of internal
control over financial reporting also excluded an evaluation of the internal control over financial
reporting of ERA. Our independent registered public accounting firm has issued an audit report on
our assessment of our internal control over financial reporting, which is included herein. |
|
There
were no changes in our internal controls over financial reporting during the quarter ended December
29, 2006 that have materially affected, or are reasonably likely to materially affect our internal
controls over financial reporting. |
|
Our
management, including our Chief Executive Officer and Chief Financial Officer, does not expect that
our disclosure controls and procedures or our internal controls will prevent all error and all fraud.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within Technitrol, Inc. have been detected.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Technitrol, Inc.: |
|
We have audited managements assessment, included in the accompanying Managements Report
on Internal Control over Financial Reporting, that Technitrol, Inc. and subsidiaries (the Company)
maintained effective internal control over financial reporting as of December 29, 2006, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over financial reporting based on our audit. |
|
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion. |
|
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A companys
internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the financial statements. |
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate. |
|
In our opinion, managements assessment that the Company maintained effective internal control
over financial reporting as of December 29, 2006, is fairly stated, in all material respects, based
on criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). |
Also, in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 29, 2006, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company acquired the ERA Group during 2006, and management excluded from its assessment of the
effectiveness of the Companys internal control over financial reporting as of December 29,
2006, ERA Groups internal control over financial reporting associated with total assets of
$92 million and total revenues of $92 million included in the consolidated financial statements of
Technitrol, Inc. and subsidiaries as of and for the year ended December 29, 2006. Our audit of internal
control over financial reporting of the Company also excluded an evaluation of the internal control
over financial reporting of the ERA Group.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of the Company as of December 29, 2006 and December
30, 2005, and the related consolidated statements of operations, cash flows, and changes in shareholders
equity for each of the years in the three-year period ended December 29, 2006, and the related financial
statement schedule, and our report dated February 26, 2007 expressed an unqualified opinion on those
consolidated financial statements and the financial statements schedule.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 26, 2007
Item 9b Other Matters
None |
|
Item 10 Directors and Executive Officers of the Registrant
The disclosure required by this item is incorporated by reference to the sections entitled, Directors
and Executive Officers and Section 16(a) Beneficial Ownership Reporting Compliance
in our definitive proxy statement to be used in connection with our 2007 Annual Shareholders Meeting.
We make available free of charge within the Investor Information section of our Internet website, at
www.technitrol.com, and in print to any shareholder who requests, our Statement of Principles Policy
and all of our Board and Committee charters. Requests for copies may be directed to Investor Relations,
Technitrol, Inc., 1210 Northbrook Drive, Suite 470, Trevose, PA 19053-8406, or telephone 215-355-2900,
extension 8428. We intend to disclose any amendments to our Statement of Principles Policy, and any
waiver from a provision of our Statement of Principles Policy, on our Internet website within five
business days following such amendment or waiver. The information contained on or connected to our
Internet website is not incorporated by reference into this Form 10-K and should not be considered
part of this or any other report that we file with or furnish to the SEC.
Item 11 Executive Compensation
The disclosure required by this item is incorporated by reference to the sections entitled, Executive
Compensation, Executive Employment Arrangements, Board Stock Ownership
and Compensation Committee Interlocks and Insider Participation in connection with our
2007 Annual Shareholders Meeting. |
|
Item 12 |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
|
The disclosure required by this item is (i) included under Part II, Item 5, and (ii) incorporated by
reference to the sections entitled, Persons Owning More Than Five Percent of Our Stock
and Stock Owned by Directors and Officers in our definitive proxy statement to be used
in connection with our 2007 Annual Shareholders Meeting. |
|
Information as of December 29, 2006 concerning plans under which our equity securities are authorized for issuance are as follows: |
|
Plan Category |
Number of shares to be
issued upon exercise of
options, grant of
restricted shares or
other incentive shares |
|
Weighted average
exercise price of
outstanding options |
|
Number of securities
remaining available
for future issuance |
|
|
|
|
|
Equity compensation plans
approved by security holders |
|
6,005,000 |
|
$ |
18.99 |
|
|
2,985,579 |
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not
approved by security holders |
|
0 |
|
|
0 |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
6,005,000 |
|
$ |
18.99 |
|
|
2,985,579 |
|
|
On May 15, 1981, our shareholders approved an incentive compensation plan (ICP) intended to enable
us to obtain and retain the services of employees by providing them with incentives that may be created
by the Board of Directors Compensation Committee under the ICP. Subsequent amendments to the plan
were approved by our shareholders including an amendment on May 23, 2001 which increased the total
number of shares of our common stock which may be granted under the plan to 4,900,000 shares. Our
2001 Stock Option Plan and the Restricted Stock Plan II were adopted under the ICP. In addition to
the ICP, plans approved by us include a 105,000 share Board of Director Stock Plan and an Employee
Stock Purchase Plan. The maximum number of shares which may be issued under our Employee Stock Purchase
Plan is 1,000,000 shares, provided, however, that such amount will be automatically increased annually
beginning on August 1, 2002 in an amount equal to the lesser of (a) 200,000 shares or, (b) two percent
(2%) of the outstanding common stock as of the last day of the prior fiscal year or alternatively
(c) such an amount as may be determined by our board of directors. In 2003, our board of directors
determined that no increase for 2003 or 2004 should be made. During 2004, the operation of the ESPP
was suspended following an evaluation of its affiliated expense and perceived value by employees.
Of the 2,985,579 shares remaining available for future issuance, 2,130,549 shares are attributable
to our Restricted Stock Plan and our Stock Option Plan, 812,099 shares are attributable to our Employee |
Stock Purchase Plan, and 42,931 shares are attributable to our Board of Director Stock Plan. Note 13
to the consolidated financial statements contains additional information regarding our stock based
compensation plans.
Item 13 Certain Relationships and Related Transactions
None
Item 14 Principal Accountant Fees and Services
The
disclosure required by this item is incorporated by reference to the section entitled Audit
and Other Fees Paid to Independent Accountants in our definitive proxy statement to be used
in connection with our 2007 Annual Shareholders Meeting. |
Part IV
Item 15 Exhibits and Financial Statement Schedule |
|
|
(a) |
Documents filed as part of this report |
|
|
|
|
PAGE |
|
|
|
|
|
Report of Independent Registered Public Accounting Firm |
|
37 |
|
Consolidated Balance Sheets December 29, 2006 and December 30, 2005 |
|
38 |
|
Consolidated Statements of Operations Years ended December 29, 2006, December 30, 2005
and December 31, 2004 |
|
39 |
|
Consolidated Statements of Cash Flows Years ended December 29, 2006, December 30, 2005
and December 31, 2004 |
|
40 |
|
Consolidated Statements of Changes in Shareholders Equity Years ended December 29, 2006,
December 30, 2005 and December 31, 2004 |
|
41 |
|
Notes to Consolidated Financial Statements |
|
42 |
|
|
|
|
Financial Statement Schedule |
|
|
|
Schedule II, Valuation and Qualifying Accounts |
|
|
|
Information required by this item is contained in the Exhibit Index found on page 64 through
66 of this report. |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Technitrol, Inc.:
We have audited the accompanying consolidated balance sheets of Technitrol, Inc. and subsidiaries (the
Company) as of December 29, 2006 and December 30, 2005, and the related consolidated
statements of operations, cash flows, and changes in shareholders equity for each of the years
in the three-year period ended December 29, 2006. In connection with our audits of the consolidated
financial statements, we also have audited the related financial statement schedule. These consolidated
financial statements and financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements
and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Technitrol, Inc. and subsidiaries as of December 29, 2006 and
December 30, 2005, and the results of their operations and their cash flows for each of the years
in the three-year period ended December 29, 2006, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
As discussed in Notes 1 and 13 to the consolidated financial statements, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, using the modified
prospective approach, effective December 31, 2005. Also, as discussed in Note 9, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans, as of December 29, 2006. As disclosed
in Note 10, the Company adopted Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations, in 2005.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of the Companys internal control over financial reporting
as of December 29, 2006, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report
dated February 26, 2007 expressed an unqualified opinion on managements assessment of, and
the effective operation of, internal control over financial reporting.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 26, 2007 |
Technitrol, Inc. and Subsidiaries
Consolidated Balance Sheets
December 29, 2006 and December 30, 2005 In thousands, except per share data |
|
Assets |
2006 |
|
2005 |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
87,195 |
|
$ |
173,664 |
|
Trade receivables, net |
|
160,083 |
|
|
136,115 |
|
Inventories |
|
106,397 |
|
|
73,598 |
|
Prepaid expenses and other current assets |
|
31,121 |
|
|
20,174 |
|
|
|
|
|
|
Total current assets |
|
384,796 |
|
|
403,551 |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
248,209 |
|
|
212,390 |
|
Less accumulated depreciation |
|
140,863 |
|
|
119,492 |
|
|
|
|
|
|
Net property, plant and equipment |
|
107,346 |
|
|
92,898 |
|
Deferred income taxes |
|
16,135 |
|
|
13,079 |
|
Goodwill, net |
|
220,528 |
|
|
142,881 |
|
Other intangibles, net |
|
32,334 |
|
|
31,648 |
|
Other assets |
|
9,741 |
|
|
2,245 |
|
|
|
|
|
|
|
$ |
770,880 |
|
$ |
686,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Current installments of long-term debt |
$ |
60 |
|
$ |
50,795 |
|
Short-term debt |
|
1,771 |
|
|
3,219 |
|
Accounts payable |
|
97,593 |
|
|
67,929 |
|
Accrued expenses and other current liabilities |
|
96,368 |
|
|
71,767 |
|
|
|
|
|
|
Total current liabilities |
|
195,792 |
|
|
193,710 |
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
Long-term debt, excluding current installments |
|
57,331 |
|
|
32,697 |
|
Deferred income taxes |
|
13,323 |
|
|
13,925 |
|
Other long-term liabilities |
|
14,314 |
|
|
14,680 |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
Minority interest |
|
9,691 |
|
|
12,626 |
|
Shareholders equity: |
|
|
|
|
|
|
Common stock: 175,000,000 shares authorized; 40,750,693
and 40,529,151 outstanding in 2006 and 2005, respectively;
$0.125 par value per share and additional paid-in capital |
|
218,919 |
|
|
215,560 |
|
Retained earnings |
|
243,084 |
|
|
200,108 |
|
Deferred compensation |
|
|
|
|
(1,234 |
) |
Other comprehensive income |
|
18,426 |
|
|
4,230 |
|
|
|
|
|
|
Total shareholders equity |
|
480,429 |
|
|
418,664 |
|
|
|
|
|
|
|
$ |
770,880 |
|
$ |
686,302 |
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements. |
Technitrol, Inc. and Subsidiaries
Consolidated Statements of Operations
Years ended December 29, 2006, December 30, 2005 and December 31, 2004
In thousands, except per share data |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Net sales |
$ |
954,096 |
|
$ |
616,378 |
|
$ |
561,298 |
|
Cost of sales |
|
735,006 |
|
|
473,535 |
|
|
415,966 |
|
|
|
|
|
|
|
|
Gross profit |
|
219,090 |
|
|
142,843 |
|
|
145,332 |
|
Selling, general and administrative expenses |
|
138,971 |
|
|
106,797 |
|
|
108,618 |
|
Severance and asset impairment expense |
|
8,829 |
|
|
53,036 |
|
|
27,851 |
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
71,290 |
|
|
(16,990 |
) |
|
8,863 |
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
Interest income |
|
1,223 |
|
|
3,480 |
|
|
1,550 |
|
Interest expense |
|
(6,551 |
) |
|
(2,128 |
) |
|
(1,888 |
) |
Other, net |
|
4,124 |
|
|
(1,690 |
) |
|
1,979 |
|
Equity method investment earnings |
|
|
|
|
|
|
|
787 |
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before
income taxes, minority interest, and cumulative
effect of accounting change |
|
70,086 |
|
|
(17,328 |
) |
|
11,291 |
|
Income taxes |
|
11,680 |
|
|
6,161 |
|
|
3,529 |
|
Minority interest expense |
|
1,511 |
|
|
939 |
|
|
655 |
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
before cumulative effect of accounting change |
|
56,895 |
|
|
(24,428 |
) |
|
7,107 |
|
Cumulative effect of accounting
change, net of income taxes |
|
75 |
|
|
(564 |
) |
|
|
|
Net earnings (loss) from discontinued operations |
|
233 |
|
|
(472 |
) |
|
(179 |
) |
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
57,203 |
|
$ |
(25,464 |
) |
$ |
6,928 |
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before
cumulative effect of accounting change |
$ |
1.41 |
|
$ |
(0.61 |
) |
$ |
0.18 |
|
Cumulative effect of accounting
change, net of income taxes |
|
0.00 |
|
|
(0.01 |
) |
|
|
|
Net earnings (loss) from discontinued operations |
|
0.01 |
|
|
(0.01 |
) |
|
(0.01 |
) |
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
1.42 |
|
$ |
(0.63 |
) |
$ |
0.17 |
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
before cumulative effect of accounting change |
$ |
1.40 |
|
$ |
(0.61 |
) |
$ |
0.18 |
|
Cumulative effect of accounting
change, net of income taxes |
|
0.00 |
|
|
(0.01 |
) |
|
|
|
Net earnings (loss) from discontinued operations |
|
0.01 |
|
|
(0.01 |
) |
|
(0.01 |
) |
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
1.41 |
|
$ |
(0.63 |
) |
$ |
0.17 |
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements. |
Technitrol, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 29, 2006, December 30, 2005 and December 31, 2004
In thousands |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Cash flows from operating activities-continuing operations: |
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
57,203 |
|
$ |
(25,464 |
) |
$ |
6,928 |
|
(Earnings) loss from discontinued operations, net |
|
(233 |
) |
|
472 |
|
|
179 |
|
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting change, net of income taxes |
|
(75 |
) |
|
564 |
|
|
|
|
Depreciation and amortization |
|
33,883 |
|
|
22,158 |
|
|
23,945 |
|
Tax effect of stock compensation |
|
(110 |
) |
|
(37 |
) |
|
(117 |
) |
Stock incentive plan expense |
|
3,283 |
|
|
3,562 |
|
|
3,482 |
|
Minority interest in net earnings of consolidated subsidiary |
|
1,511 |
|
|
939 |
|
|
655 |
|
Loss on disposal or sale of assets |
|
431 |
|
|
10,660 |
|
|
941 |
|
Intangible asset impairment, net of income taxes |
|
|
|
|
37,047 |
|
|
16,301 |
|
Deferred taxes |
|
(2,937 |
) |
|
7,749 |
|
|
(2,553 |
) |
Severance and asset impairment expense, net of cash payments (excluding loss on disposal of assets and intangible asset impairments, net of taxes) |
|
980 |
|
|
1,137 |
|
|
1,881 |
|
Inventory write downs |
|
8,051 |
|
|
5,334 |
|
|
6,106 |
|
Changes in assets and liabilities, net of effect of
acquisitions and divestitures: |
|
|
|
|
|
|
|
|
|
Trade receivables |
|
(9,645 |
) |
|
(19,381 |
) |
|
5,861 |
|
Inventories |
|
(21,896 |
) |
|
(2,787 |
) |
|
(9,449 |
) |
Prepaid expenses and other current assets |
|
(758 |
) |
|
1,592 |
|
|
(238 |
) |
Accounts payable |
|
12,735 |
|
|
18,277 |
|
|
(8,895 |
) |
Accrued expenses |
|
(2,128 |
) |
|
(14,798 |
) |
|
(5,143 |
) |
Other, net |
|
(1,832 |
) |
|
(2,455 |
) |
|
(3,106 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
78,463 |
|
|
44,569 |
|
|
36,778 |
|
|
|
|
|
|
|
|
Cash flows from investing activities-continuing operations: |
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired of $1,285, $357
and $11,700 in 2006, 2005 and 2004, respectively |
|
(91,824 |
) |
|
(90,012 |
) |
|
(5,088 |
) |
Proceeds from sale of business |
|
|
|
|
6,724 |
|
|
|
|
Capital expenditures, excluding acquisitions |
|
(25,357 |
) |
|
(16,253 |
) |
|
(10,945 |
) |
Purchase of grantor trust investments available for sale |
|
(7,151 |
) |
|
|
|
|
|
|
Proceeds from sale of property, plant and equipment |
|
3,565 |
|
|
2,009 |
|
|
1,001 |
|
Foreign currency impact on intercompany lending |
|
(6,106 |
) |
|
8,868 |
|
|
(6,407 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
(126,873 |
) |
|
(88,664 |
) |
|
(21,439 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities-continuing operations: |
|
|
|
|
|
|
|
|
|
Principal (payments) on short-term debt, net |
|
(2,445 |
) |
|
(3,498 |
) |
|
(152 |
) |
Principal (payments) borrowings on long-term debt, net |
|
(25,800 |
) |
|
77,119 |
|
|
39 |
|
Dividends paid |
|
(14,227 |
) |
|
(10,634 |
) |
|
|
|
Exercise of stock options |
|
2,407 |
|
|
|
|
|
23 |
|
Tax effect of stock compensation |
|
110 |
|
|
|
|
|
|
|
Sale of stock through employee stock purchase plan |
|
|
|
|
|
|
|
652 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
(39,955 |
) |
|
62,987 |
|
|
562 |
|
|
|
|
|
|
|
|
Net effect of exchange rate changes on cash |
|
(592 |
) |
|
(1,101 |
) |
|
123 |
|
|
|
|
|
|
|
|
Cash flows of discontinued operations: |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
528 |
|
|
(72 |
) |
|
(3,473 |
) |
Net cash provided by (used in) investing activities |
|
1,960 |
|
|
(7 |
) |
|
(47 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
from discontinued operations |
|
2,488 |
|
|
(79 |
) |
|
(3,520 |
) |
Net (decrease) increase in cash and cash equivalents |
|
(86,469 |
) |
|
17,712 |
|
|
12,504 |
|
Cash and cash equivalents at beginning of year |
|
173,664 |
|
|
155,952 |
|
|
143,448 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
$ |
87,195 |
|
$ |
173,664 |
|
$ |
155,952 |
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements. |
Technitrol, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity
Years ended December 29, 2006, December 30, 2005 and December 31, 2004
In thousands, except per share data |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
and
paid-in
capital |
|
Retained
earnings |
|
Deferred
compensation |
|
Accumulated
other
comprehensive
income |
|
Comprehensive
income (loss) |
|
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 26, 2003 |
|
40,279 |
|
$ |
209,768 |
|
$ |
232,824 |
|
$ |
(1,342 |
) |
$ |
7,500 |
|
|
|
|
Stock options, awards and
related compensation |
|
124 |
|
|
3,351 |
|
|
|
|
|
(626 |
) |
|
|
|
|
|
|
Tax effect of stock
compensation |
|
|
|
|
(117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued under employee
stock
purchase plan |
|
45 |
|
|
692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
6,039 |
|
$ |
6,039 |
|
Minimum pension liability
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
(158 |
) |
|
(158 |
) |
Unrealized holding gains on
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
3 |
|
Net earnings |
|
|
|
|
|
|
|
6,928 |
|
|
|
|
|
|
|
|
6,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
40,448 |
|
$ |
213,694 |
|
$ |
239,752 |
|
$ |
(1,968 |
) |
$ |
13,384 |
|
|
|
|
Stock options, awards and
related compensation |
|
81 |
|
|
1,903 |
|
|
|
|
|
734 |
|
|
|
|
|
|
|
Tax effect of stock
compensation |
|
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
($0.35 per share) |
|
|
|
|
|
|
|
(14,180 |
) |
|
|
|
|
|
|
|
|
|
Currency translation
adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,156 |
) |
$ |
(9,156 |
) |
Unrealized holding gains
on securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
2 |
|
Net loss |
|
|
|
|
|
|
|
(25,464 |
) |
|
|
|
|
|
|
|
(25,464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(34,618 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2005 |
|
40,529 |
|
$ |
215,560 |
|
$ |
200,108 |
|
$ |
(1,234 |
) |
$ |
4,230 |
|
|
|
|
Reclassification due to SFAS
123(R) adoption |
|
|
|
|
(1,234 |
) |
|
|
|
|
1,234 |
|
|
|
|
|
|
|
Stock options, awards and
related compensation |
|
222 |
|
|
4,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect of stock
compensation |
|
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment due to SFAS
158 adoption |
|
|
|
|
|
|
|
|
|
|
|
|
|
976 |
|
|
|
|
Dividends declared
($0.35 per share) |
|
|
|
|
|
|
|
(14,227 |
) |
|
|
|
|
|
|
|
|
|
Currency translation
adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
13,012 |
|
$ |
13,012 |
|
Unrealized holding gains
on securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
208 |
|
|
208 |
|
Net earnings |
|
|
|
|
|
|
|
57,203 |
|
|
|
|
|
|
|
|
57,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
70,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2006 |
|
40,751 |
|
$ |
218,919 |
|
$ |
243,084 |
|
$ |
|
|
$ |
18,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements. |
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The
consolidated financial statements include the accounts of Technitrol, Inc. and all of our subsidiaries.
We sometimes refer to Technitrol as we or our. All material intercompany
accounts and transactions are eliminated in consolidation.
Cash and Cash Equivalents
Cash
and cash equivalents include funds invested in a variety of liquid short-term investments with an
original maturity of three months or less.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined by the first-in, first-out method.
We establish inventory provisions to write down excess and obsolete inventory to market value. Inventory
that is written down to market in the ordinary course of business is not written back up after a
write down. Inventory provisions are utilized when the actual inventory is physically disposed. Cash
flows from the sale of inventory are recorded in operating cash flows. The provisions are determined
by comparing quantities on-hand to historical usage and forecasted demand. Inventory reserves at
December 29, 2006 and December 30, 2005 were $11.3 million and $11.5 million, respectively.
Property, Plant and Equipment
Property,
plant and equipment are stated at cost. Depreciation is based upon the estimated useful life of the
assets on both the accelerated and the straight-line methods. Estimated useful lives of assets range
from 5 to 30 years for buildings and improvements and from 3 to 10 years for machinery and equipment.
Expenditures for maintenance and repairs are charged to operations as incurred, and major renewals
and betterments are capitalized. Upon sale or retirement, the cost of the asset and related accumulated
depreciation are removed from our balance sheet, and any resulting gains or losses are included in
earnings.
Goodwill and Other Intangibles
SFAS 142, Goodwill and Other Intangibles Assets, requires that goodwill and intangible assets with indefinite useful lives be tested for impairment
at least annually. SFAS 142 also requires that other intangible assets with finite useful lives be
amortized over their respective estimated useful lives to their estimated residual values, and reviewed
for impairment in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long Lived Assets. We amortize other identifiable intangibles, except those with indefinite lives, on a straight-line
basis over 4 to 10 years. See Note 2 and Note 5 for additional information regarding goodwill and
other intangible assets.
Revenue Recognition
Revenue
is recognized upon shipment of product and passage of title without right of return, after all performance
factors have been met. We are not subject to any significant customer acceptance provisions. All
product returns are deducted from net sales and are accrued for based on historical experience and
Financial Accounting Standard No. 48, Revenue Recognition When Right of Return Exists. Warranties
are limited to rework, replacement of products and other normal remedies. We record an allowance
for doubtful receivables. Accounts receivable allowances at December 29, 2006 and December 30, 2005
were $1.8 million and $1.7 million, respectively.
Stock-based Compensation
We
currently sponsor a stock option plan and a restricted stock award plan. On December 31, 2005, we
adopted SFAS 123(R), Share-Based Payment, which replaces SFAS 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R), compensation cost
relating to stock-based payment transactions is recognized in the financial statements, and is based
on the fair value of the equity or liability instruments issued. SFAS No. 123(R) applies to all of
our outstanding unvested stock-based payment awards as of December 31, 2005 and all prior awards
using the modified prospective transition method without restatement of prior periods. Prior to December
31, 2005, we had previously adopted SFAS 123, as amended by SFAS 148, Accounting for Stock-Based Compensation Transition and Disclosure An amendment of FASB
Statement No. 123, whereby compensation expense was recorded for all awards subsequent to adoption. Upon the adoption
of SFAS 123(R), the cumulative effect recorded in the year ended December 29, 2006 was a gain of
$0.1 million, net of taxes. |
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Prior to SFAS 123(R) adoption, if compensation cost for issuances under our stock option plan and stock
purchase plan had been determined based on the fair value as required by SFAS 123(R) for all awards,
our pro forma net (loss) income and (loss) earnings per basic and diluted share would have been as
follows (in thousands, except per share amounts): |
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Net (loss) earnings - as reported |
$ |
(25,464 |
) |
$ |
6,928 |
|
|
Add: Stock-based compensation expense included in reported net
(loss) earnings, net of taxes |
|
2,151 |
|
|
2,186 |
|
|
Deduct: Total stock-based compensation expense determined under
fair value based method for all awards, net of taxes |
|
(2,494 |
) |
|
(2,764 |
) |
|
|
|
|
|
|
|
Net (loss) earnings adjusted |
$ |
(25,807 |
) |
$ |
6,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings - as reported |
$ |
(0.63 |
) |
$ |
0.17 |
|
|
Basic and diluted (loss) earnings adjusted |
$ |
(0.64 |
) |
$ |
0.16 |
|
|
|
Foreign Currency Translation
Certain of our foreign subsidiaries use the U.S. dollar as a functional currency and others use a local
currency. For subsidiaries using the U.S. dollar as the functional currency, non-U.S. dollar monetary
assets and liabilities are remeasured at year-end exchange rates while non-monetary items are remeasured
at historical rates. Income and expense accounts are remeasured at the average rates in effect during
the year, except for depreciation that is remeasured at historical rates. Gains or losses from changes
in exchange rates are recognized in earnings in the period of occurrence. For subsidiaries using
a local currency as the functional currency, net assets are translated at year-end rates while income
and expense accounts are translated at average exchange rates. Adjustments resulting from these translations
are reflected as currency translation adjustments in shareholders equity.
Financial Instruments and Derivative Financial Instruments
The
carrying value of our cash and cash equivalents, accounts receivable, short-term borrowings, accounts
payable and accrued expenses are a reasonable estimate of their fair value due to the short-term
nature of these instruments. The carrying value of our long-term debt approximates our fair value
after taking into consideration current rates offered to us under our credit facility. Additionally,
as the majority of our long-term borrowings are subject to variable interest rates, we estimate that
the carrying amount of our long-term debt approximates fair value. We do not hold or issue financial
instruments or derivative financial instruments for trading purposes.
We
are exposed to market risk from changes in interest rates, foreign currency exchange rates and precious
metal prices. To mitigate the risk from these changes, we periodically enter into hedging transactions
which have been authorized pursuant to our policies and procedures. In accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities, gains and losses related to fair value hedges are recognized in income along with adjustments of
carrying amounts of the hedged item. Therefore, all of our forward exchange contracts are marked-to-market,
and unrealized gains and losses are included in current-period net income. Although we had no forward
exchange contracts outstanding at December 29, 2006, we did utilize foreign currency forwards during
the 2006 period. At December 30, 2005, we had one foreign exchange contract in place to sell forward
approximately 49.9 million of euro in connection with hedging intercompany loans.
Precious Metal Consignment-type Leases
We
had custody of inventories under consignment-type leases from suppliers of $135.8 million at December
29, 2006 and $87.8 million at December 30, 2005. The increase is the result of overall volume increases
and higher silver prices at December 29, 2006 than at December 30, 2005. We have three consignment-type
leases in place for sourcing all precious metals and the related inventory and liability are not
recorded on our balance sheet. The agreements are generally one-year in duration and can be extended
with annual renewals and either party can terminate the agreements with 30 days written notice. The
primary covenant in each of the agreements is a prohibition against us creating security interests
in the consigned metals. Included in interest expense for the year ended December 29, 2006 were consignment
fees of $3.6 million. These consignment fees were $1.1 million and $1.0 million in the years ended
December 30, 2005 and December 31, 2004, respectively. |
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Estimates
Our
preparation of financial statements is in conformity with what generally accepted accounting principles
require and we make estimates and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual amounts could differ
significantly from those estimates.
Reclassifications
Certain
amounts in the prior-year financial statements have been reclassified to conform with the current-year
presentation. Also refer to Note 3 Divestiture.
(2) Acquisitions
Larsen Group : In December 2006, we acquired certain assets which comprise the Larsen Group (Larsen)
from Radiall Incorporated. Headquartered in Vancouver, Washington, Larsen has production operations
in the United States, China and France. We have included the acquired assets in our consolidated
balance sheet since the effective date of the acquisition. Results of operations will be included
in our consolidated earnings beginning in the 2007 fiscal year. Larsen manufactures non-cellular
wireless and automotive antennas and will be an expansion to Pulses antenna division. The purchase
price and preliminary fair value of the acquired assets are not material to our consolidated financial
statements.
ERA Group: On January 4, 2006, we acquired all of the capital stock of ERA Group (ERA), headquartered
in Herrenberg, Germany with production operations in Germany, China and Tunisia. The results of ERAs
operations have been included in our consolidated financial statements since the effective date of
the acquisition. ERA produces advanced-technology ignition coils, along with a variety of other coils
and transformers used in automotive, heating/ventilation/air conditioning and appliance applications.
It became the foundation of Pulses automotive division. The purchase price was approximately
$53.4 million, net of cash acquired of $1.3 million, and including acquisition costs of approximately
$0.9 million. The purchase price was financed primarily with bank credit under our multi-currency
credit facility. The fair value of the net tangible assets acquired approximated $12.0 million. In
addition to the fair value of net tangible assets acquired, purchase price allocations included $2.2
million for intellectual property, $3.1 million for customer relationships and $37.4 million allocated
to goodwill. Each of the identifiable intangibles with finite lives is being amortized, using lives
of 5 years for intellectual property and customer relationships. The following table summarizes the
fair values of the assets acquired and liabilities assumed at the date of acquisition (in millions): |
|
|
Current assets |
$ |
17.7 |
|
|
|
Property, plant and equipment |
|
21.3 |
|
|
|
Identifiable intangibles |
|
5.3 |
|
|
|
Goodwill |
|
37.4 |
|
|
|
|
|
|
|
|
Total assets acquired |
$ |
81.7 |
|
|
|
|
|
|
|
|
|
Current liabilities |
$ |
27.0 |
|
|
|
|
|
|
|
|
Total liabilities assumed |
$ |
27.0 |
|
|
|
|
|
|
|
|
|
Net assets acquired |
$ |
54.7 |
|
|
|
|
|
|
|
|
For
the twelve months ended December 29, 2006, ERA generated revenues of approximately $92 million.
LK Products Oy: On September 8, 2005, we acquired all of the capital stock of LK Products Oy (LK), headquartered
in Kempele, Finland with production operations in Finland, China and Hungary as well as offices in
South Korea and San Diego. The results of LKs operations have been included in our consolidated
financial statements since that date. LK produces antennas and integrated modules for mobile communications
and information devices and is the foundation of Pulses antenna division. The purchase price
was approximately $111.1 million, net of cash acquired of $0.4 million, and including acquisition
costs of approximately $2.3 million and consideration resulting from the earn-out provision noted
below. The initial purchase price was funded with cash on hand. The fair value of the net tangible
assets acquired approximated $19.2 million. In addition to the fair value of assets acquired, purchase
price allocations included $19.4 million for customer relationships, $0.4 million for trademarks,
$1.4 million for technology and $71.1 million allocated to goodwill. Each of the identifiable intangibles
with finite lives is being |
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(2) Acquisitions, continued
amortized, using lives of 5 years for technology and 10 years for customer relationships. The purchase
agreement also included an earn-out provision which resulted in us paying approximately $19.8 million,
or 15.5 million euros, net of a receivable from the seller, in 2006. LK is treated as a separate
reporting unit for purposes of SFAS 142.
Full Rise Electronic Co., Ltd.: Full Rise Electronic Co., Ltd. (FRE) is based in Taiwan and manufactures connector products,
including single and multiple-port jacks, and supplies products to us under a cooperation agreement.
We began making investments in FRE in April 2001. As of December 29, 2006, our investment in FRE
was approximately $31.5 million and our ownership percentage was approximately 71%. Our net earnings
therefore reflect FREs net earnings, after deducting the minority interest due to the minority
shareholders. Purchases of common stock in FRE are allocated, on a pro rata basis, to goodwill, identifiable
intangible assets, and property, plant, and equipment according to the estimated fair value of such
assets as of the date we began consolidating FREs results with our own. Based on the fair value
of net tangible assets acquired and our current ownership percentage, the allocation of the investment
to intangibles includes $0.5 million for technology, $0.6 million for trademarks, $2.1 million for
customer relationships and $8.8 million of goodwill. All of the separately identifiable intangibles
are being amortized, using lives of 4 years for technology and customer relationships.
(3) Divestiture
In 2005, we received approximately $6.7 million for the sale of AMI Doducos bimetal and metal
cladding operations. We realized a gain of approximately $1.4 million from the sale of approximately
$5.1 million of inventory and $0.2 million of machinery and equipment. During 2005, we accrued $1.3
million for severance and related payments resulting from the announcement to terminate manufacturing
and support personnel and incurred other expenses related to the shutdown of operations. The majority
of this accrual was paid by December 30, 2005. Additionally, we realized a $1.1 million pension curtailment
gain during the 2005 period as a result of the reduced estimated future service period of the severed
personnel. In December of 2006, the remaining fixed assets were sold for approximately $2.0 million,
which resulted in a pretax gain of $0.6 million over the previously carried $1.4 million net book
value. The gain is included in earnings from discontinued operations. We have reflected the results
of the bimetal and metal cladding operations as discontinued operations on the Consolidated Statements
of Operations for all periods presented.
Summary results of operations for the bimetal and metal cladding operations were as follows (in thousands): |
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
|
|
$ |
9,020 |
|
$ |
21,016 |
|
|
|
Earnings (loss) before income taxes |
|
359 |
|
|
(726 |
) |
|
(276 |
) |
|
|
(4) Financial Statement Details
The
following provides details for certain financial statement captions at December 29, 2006 and December
30, 2005 (in thousands): |
|
|
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
Inventories: |
|
|
|
|
|
|
|
|
Finished goods |
$ |
37,415 |
|
$ |
29,113 |
|
|
|
Work in progress |
|
23,843 |
|
|
19,130 |
|
|
|
Raw materials and supplies |
|
45,139 |
|
|
25,355 |
|
|
|
|
|
|
|
|
|
|
|
$ |
106,397 |
|
$ |
73,598 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost: |
|
|
|
|
|
|
|
|
Land |
$ |
6,418 |
|
$ |
4,313 |
|
|
|
Buildings and improvements |
|
38,675 |
|
|
43,990 |
|
|
|
Machinery and equipment |
|
203,116 |
|
|
164,087 |
|
|
|
|
|
|
|
|
|
|
|
$ |
248,209 |
|
$ |
212,390 |
|
|
|
|
|
|
|
|
|
|
Accrued expenses: |
|
|
|
|
|
|
|
|
Income taxes payable |
$ |
31,607 |
|
$ |
20,217 |
|
|
|
Accrued compensation |
|
21,943 |
|
|
18,358 |
|
|
|
Other accrued expenses |
|
42,818 |
|
|
33,192 |
|
|
|
|
|
|
|
|
|
|
|
$ |
96,368 |
|
$ |
71,767 |
|
|
|
|
|
|
|
|
|
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(5) Goodwill and Other Intangible Assets
FASB
Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142), requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually in accordance with the
provisions of SFAS 142. SFAS 142 also requires that other intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
The changes in the carrying amounts of goodwill for the years ended December 29, 2006 and December
30, 2005 were as follows (in thousands): |
|
|
Balance at December 31, 2004 |
$ |
126,178 |
|
|
|
|
|
|
|
|
|
Goodwill acquired during the year |
|
45,659 |
|
|
|
Purchase price allocation and other adjustment |
|
1,622 |
|
|
|
Impairment adjustment |
|
(25,614 |
) |
|
|
Currency translation adjustment |
|
(4,964 |
) |
|
|
|
|
|
|
|
|
Balance at December 30, 2005 |
$ |
142,881 |
|
|
|
|
|
|
|
|
Goodwill acquired during the year |
|
68,610 |
|
|
|
Purchase price allocation and other adjustment |
|
997 |
|
|
|
Currency translation adjustment |
|
8,040 |
|
|
|
|
|
|
|
|
|
Balance at December 30, 2006 |
$ |
220,528 |
|
|
|
|
|
|
|
|
The majority of our goodwill and other intangibles relate to our Pulse segment.
During 2006, we completed the purchase price allocation for LK which resulted in a $3.3 million reclassification
from identifiable intangibles to goodwill. During 2005, we recorded a $37.1 million impairment charge
relating to Pulse Consumer Division assets consisting of $25.6 million of goodwill and $11.5 million
of identifiable intangible assets. These impairments resulted from updated cash flow projections
which reflect the shift of production by Pulse to China-based locations, decreasing average selling
prices for television transactions, and the overall decline in the European television market for
flyback transformers.
Other intangible assets were as follows (in thousands): |
|
|
December 29,
2006 |
|
December 30,
2005 |
|
|
|
|
|
|
Intangible assets subject to amortization (definite lives): |
|
|
|
|
|
|
Technology |
$ |
11,207 |
|
$ |
8,600 |
|
Customer relationships |
|
26,102 |
|
|
17,092 |
|
Tradename / trademark |
|
383 |
|
|
|
|
Other |
|
2,402 |
|
|
1,590 |
|
|
|
|
|
|
Total |
$ |
40,094 |
|
$ |
27,282 |
|
Accumulated amortization: |
|
|
|
|
|
|
Technology |
$ |
(7,113 |
) |
$ |
(5,939 |
) |
Customer relationships |
|
(4,391 |
) |
|
(1,012 |
) |
Tradename / trademark |
|
(383 |
) |
|
|
|
Other |
|
(531 |
) |
|
(327 |
) |
|
|
|
|
|
Total |
$ |
(12,418 |
) |
$ |
(7,278 |
) |
|
|
|
|
|
|
Net tangible assets subject to amortization |
$ |
27,676 |
|
$ |
20,004 |
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization (indefinite lives): |
|
|
|
|
|
|
Tradename |
$ |
4,658 |
|
$ |
11,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangibles, net |
$ |
32,334 |
|
$ |
31,648 |
|
|
|
|
|
|
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(5) Goodwill and Other Intangible Assets, continued
Amortization
expense was $4,802,000, $2,053,000 and $4,477,000 for the years ended December 29, 2006, December
30, 2005 and December 31, 2004, respectively. Estimated annual amortization expense for each of the
next five years is as follows (in thousands): |
|
|
Year Ending |
|
|
|
|
|
|
|
|
|
|
|
2007 |
$ |
4,518 |
|
|
|
2008 |
$ |
4,447 |
|
|
|
2009 |
$ |
3,869 |
|
|
|
2010 |
$ |
3,519 |
|
|
|
2011 |
$ |
2,163 |
|
|
|
|
|
|
|
|
|
$ |
18,516 |
|
|
|
|
|
|
|
|
(6) Investments
As of December
29, 2006 and December 30, 2005 we held approximately $7.5 million and $0, respectively, of securities
designated as available for sale according to SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. In the period ending December 29, 2006, we recognized approximately $0.2 million of unrealized
holding gains as a component of accumulated other comprehensive income as a result of holding these
securities. We do not intend to liquidate the majority of these securities in a short period of time,
and therefore, we have included these investments as a component of other assets on our Consolidated
Balance Sheet as of December 29, 2006. These securities are held in an irrevocable grantor trust
(Rabbi Trust) and will be used to fund future benefit payments to participants in one
of our defined benefit plans. The Rabbi Trust was established in 2006 and is subject to the claims
of our general creditors in the event of our insolvency.
(7) Debt
At December 29, 2006, short-term and long-term debt was as follows (in thousands): |
|
Short-term Debt |
|
|
|
|
2006 |
|
Bank Loans |
|
|
Fixed-rate, (5.58%) unsecured debt in China (denominated in Renminbi) due 2007 |
$ |
1,645 |
|
Fixed-rate, (7.20%) unsecured debt in China (denominated in Renminbi) due 2007 |
|
126 |
|
|
|
|
Total short-term debt |
$ |
1,771 |
|
|
|
|
Long-term Debt |
|
|
|
|
|
|
|
Bank Loans |
|
|
|
Variable-rate, (5.95%) unsecured debt in Singapore (denominated in US Dollars) due 2010 |
$ |
11,000 |
|
Variable-rate, (4.26%) unsecured debt in Germany (denominated in euros) due 2010 |
|
25,081 |
|
Variable-rate, (5.95%) unsecured debt in Hong Kong (denominated in US Dollars) due 2010 |
|
8,500 |
|
Variable-rate, (5.95%) unsecured debt in the United States (denominated in US Dollars)
due 2010 |
|
6,000 |
|
Fixed-rate, (5.65%) unsecured debt in Germany (denominated in euros) due 2009 |
|
6,750 |
|
|
|
|
|
Mortgage Notes |
|
|
|
8.20% - 10.32% mortgage notes, due in monthly installments until 2007 |
|
60 |
|
|
|
|
Total long-term debt |
|
57,391 |
|
Less current installments |
|
(60 |
) |
|
|
|
Long-term debt excluding current installments |
$ |
57,331 |
|
|
|
|
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(7) Debt, continued
At December 30, 2005, short-term and long-term debt was as follows (in thousands): |
|
Short-term Debt |
|
|
|
|
2005 |
|
Bank Loans |
|
|
Fixed-rate, (5.12%) unsecured debt in China (denominated in Renminbi) due 2006 |
$ |
617 |
|
Fixed-rate, (5.20 %) unsecured debt in China (denominated in Renminbi) due 2006 |
|
602 |
|
Fixed-rate, (4.88%) unsecured debt in China (denominated in US Dollars) due 2006 |
|
500 |
|
Fixed-rate, (5.33%) unsecured debt in China (denominated in US Dollars) due 2006 |
|
500 |
|
Variable-rate, (4.72%) unsecured debt in China (denominated in US Dollars) due 2006 |
|
1,000 |
|
|
|
|
Total short-term debt |
$ |
3,219 |
|
|
|
|
Long-term Debt |
|
|
|
|
|
|
|
Bank Loans |
|
|
|
Variable-rate, (3.72%) unsecured debt in China (denominated in Renminbi) due 2007 |
$ |
997 |
|
Variable-rate, (3.08 %) unsecured debt in Germany (denominated in euros) due 2010 |
|
17,777 |
|
Fixed-rate, (5.65%) unsecured debt in Germany (denominated in euros) due 2009 |
|
6,054 |
|
Variable-rate, (5.10%) unsecured debt in Hong Kong (denominated in US Dollars) due 2010 |
|
8,500 |
|
Fixed-rate, (4.97%) unsecured debt in Hong Kong (denominated in US Dollars) due 2010 |
|
50,000 |
|
|
|
|
|
Mortgage Notes |
|
|
|
8.20% - 10.32% mortgage notes, due in monthly installments until 2007 |
|
164 |
|
|
|
|
Total long-term debt |
|
83,492 |
|
Less current installments |
|
50,795 |
|
|
|
|
Long-term debt excluding current installments |
$ |
32,697 |
|
|
|
|
|
We entered into a credit agreement on October 14, 2005 providing for $200.0 million of credit capacity.
The facility consists of an aggregate U.S. dollar-equivalent revolving line of credit in the principal
amount of up to $200.0 million, and provides for borrowings in multiple currencies including but
not limited to, U.S. dollars, euros, and Japanese yen, including individual sub-limits of: |
|
|
|
a U.S. dollar-based swing-line loan not to exceed $20.0 million; |
|
|
|
|
|
a multicurrency facility providing for the issuance of letters of credit in an aggregate amount not
to exceed the U.S. dollar equivalent of $25.0 million; and |
|
|
|
|
|
a Singapore sub-facility not to exceed the U.S. dollar equivalent of $50.0 million. |
|
The credit agreement permits us to request one or more increases in the total commitment not to exceed
$100.0 million, provided the minimum increase is $25.0 million, subject to bank approval.
The total amount outstanding under the credit facility may not exceed $200.0 million, provided we do
not request an increase in total commitment as noted above.
Outstanding borrowings are subject to two financial covenants, which are both computed on a rolling
twelve-month basis as of the most recent quarter-end. The first is maximum debt outstanding amounting
to three and one-half times our earnings before interest, taxes, depreciation and amortization (EBITDA),
as defined by the credit agreement. The second is maximum debt service expenses amounting to two
and one-half times our cash interest expense, as defined by the credit agreement. The credit agreement
also contains covenants specifying capital expenditure limitations and other customary and normal
provisions. We are in compliance with these covenants as of December 29, 2006.
As of December 29, 2006, we had $50.6 million of outstanding borrowings under this five-year revolving
credit agreement, primarily to fund acquisitions. Our total credit available, including standby letters
of credit, as of December 29, 2006 was approximately $148.0 million. |
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(7) Debt, continued
We pay a commitment fee on the unborrowed portion of the commitment, which ranges from 0.15% to 0.25%
of the total commitment, depending on our debt-to-EBITDA ratio, as defined above. The interest rate
for each currencys borrowing will be a combination of the base rate for that currency plus a credit margin
spread. The base rate is different for each currency. The credit margin spread is the same for each
currency and is 0.60% to 1.25%, depending on our debt-to-EBITDA ratio, as defined in the credit agreement.
Each of our domestic subsidiaries with net worth equal to or greater than $10 million has guaranteed
all obligations incurred under the credit facility.
We also have an obligation outstanding due in August 2009 under an unsecured term loan agreement with
Sparkasse Pforzheim, for the borrowing of approximately 5.1 million euros.
At December 29, 2006, we included $1.8 million of outstanding debt of Full Rise Electronic Co., Ltd.
in connection with our consolidation of FREs financial statements. FRE has a total credit
limit
of approximately $3.2 million in U.S. dollar equivalents as of December 29, 2006. Neither
Technitrol,
nor any of its wholly-owned subsidiaries, has guaranteed or otherwise participated
or assumed any
responsibility for the current or future indebtedness of FRE.
We had four standby letters of credit outstanding at December 29, 2006 in the aggregate amount
of $1.4 million securing transactions entered into in the ordinary course of business.
We had commercial commitments outstanding at December 29, 2006 of approximately $135.8 million due
under precious metal consignment-type leases. This represents an increase of $48.0 million from the
$87.8 million outstanding as of December 30, 2005 and is attributable to volume increases and higher
average silver prices during 2006.
Principal payments due within the next five years are as follows (in thousands): |
|
|
2007 |
$ |
1,831 |
|
|
|
2008 |
|
|
|
|
|
2009 |
|
6,750 |
|
|
|
2010 |
|
50,581 |
|
|
|
2011 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
$ |
59,162 |
|
|
|
|
|
|
|
|
(8) Income Taxes
(Loss)
earnings from continuing operations before income taxes, minority interest and cumulative effect
of accounting change were as follows (in thousands): |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
Domestic |
$ |
(4,324 |
) |
$ |
(5,722 |
) |
$ |
(7,319 |
) |
|
Non-U.S. |
|
74,410 |
|
|
(11,606 |
) |
|
18,610 |
|
|
|
|
|
|
|
|
|
|
Total |
$ |
70,086 |
|
$ |
(17,328 |
) |
$ |
11,291 |
|
|
|
|
|
|
|
|
|
|
Income tax expense was as follows (in thousands): |
Current: |
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
Federal |
$ |
4,339 |
|
$ |
(2,188 |
) |
$ |
1,691 |
|
|
State and local |
|
290 |
|
|
248 |
|
|
(821 |
) |
|
Non-U.S. |
|
9,988 |
|
|
352 |
|
|
5,212 |
|
|
|
|
|
|
|
|
|
|
|
|
14,617 |
|
|
(1,588 |
) |
|
6,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
Federal |
|
(2,937 |
) |
|
4,414 |
|
|
(1,502 |
) |
|
State and local |
|
(584 |
) |
|
785 |
|
|
501 |
|
|
Non-U.S. |
|
584 |
|
|
2,550 |
|
|
(1,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
(2,937 |
) |
|
7,749 |
|
|
(2,553 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tax expense |
$ |
11,680 |
|
$ |
6,161 |
|
$ |
3,529 |
|
|
|
|
|
|
|
|
|
|
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(8) Income Taxes, continued
A reconciliation of the statutory federal income tax rate with the effective income tax rate was as
follows: |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Statutory federal income tax rate |
|
35 |
% |
|
35 |
% |
|
35 |
% |
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
Tax-exempt earnings of subsidiary in Puerto Rico |
|
|
|
|
|
|
|
(4 |
) |
State and local income taxes, net of federal tax effect |
|
|
|
|
(1 |
) |
|
(2 |
) |
Non-deductible expenses and other |
|
3 |
|
|
20 |
|
|
7 |
|
Section 965 dividend |
|
|
|
|
(41 |
) |
|
|
|
Non-U.S. income subject to U.S. income tax |
|
2 |
|
|
(8 |
) |
|
16 |
|
Foreign |
|
(22 |
) |
|
(40 |
) |
|
(21 |
) |
Research and development and other tax credits |
|
(1 |
) |
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
17 |
% |
|
(36 |
%) |
|
31 |
% |
|
|
|
|
|
|
|
|
Several of our foreign subsidiaries continue to operate under separate tax holiday arrangements as
granted by certain foreign jurisdictions. The nature and extent of such arrangements vary, and the
benefits of such arrangements may phase out in the future according to the specific terms and schedules
as set forth by the particular tax authorities having jurisdiction over the arrangements. In 2006,
2005 and 2004, taxes on foreign earnings were favorably impacted by tax holidays and other incentives in certain foreign
jurisdictions of $11.4 million, $0.9 million and $3.4 million, respectively.
Deferred tax assets and liabilities included the following (in thousands): |
|
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
Inventories |
$ |
(16 |
) |
$ |
644 |
|
|
Plant and equipment |
|
3,804 |
|
|
3,480 |
|
|
Vacation pay and other compensation |
|
479 |
|
|
372 |
|
|
Pension expense |
|
2,654 |
|
|
2,664 |
|
|
Stock awards |
|
450 |
|
|
148 |
|
|
Accrued liabilities |
|
1,043 |
|
|
1,483 |
|
|
Net operating losses state and foreign |
|
24,104 |
|
|
11,125 |
|
|
Tax credits |
|
21,573 |
|
|
18,750 |
|
|
Other |
|
1,642 |
|
|
1,672 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
55,733 |
|
|
40,338 |
|
|
Valuation allowance |
|
(23,076 |
) |
|
(12,625 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
$ |
32,657 |
|
$ |
27,713 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
Foreign earnings not permanently invested |
$ |
18,957 |
|
$ |
19,203 |
|
|
Acquired intangibles |
|
8,816 |
|
|
7,056 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
27,773 |
|
|
26,259 |
|
|
|
|
|
|
|
|
Net deferred taxes |
$ |
4,884 |
|
$ |
1,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term deferred tax assets |
$ |
3,290 |
|
$ |
3,029 |
|
|
Short-term deferred tax liabilities |
|
(1,218 |
) |
|
(729 |
) |
|
Long-term deferred tax assets |
|
16,135 |
|
|
13,079 |
|
|
Long-term deferred tax liabilities |
|
(13,323 |
) |
|
(13,925 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
$ |
4,884 |
|
$ |
1,454 |
|
|
|
|
|
|
|
|
|
The valuation allowance on the deferred tax asset increased $10.5 million primarily due to additional
net operating losses that were incurred in certain jurisdictions in which the tax benefit of those
losses is not likely to be realized. Based on our history of taxable income and our projection of
future earnings, we believe that it is more likely than not that sufficient taxable income will be
generated in the foreseeable future to realize the net deferred tax assets. Unless utilized, net
operating losses will expire in fiscal years 2007 through 2026. Foreign tax credit carryforwards
will start to expire in 2010. Research and development credit carryforwards will start to expire in 2019. |
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(8) Income Taxes, continued
In October 2004, the American Jobs Creation Act of 2004 (AJCA) was signed into law. The
AJCA contained a series of provisions, several of which are pertinent to us. The AJCA created a temporary
incentive for U.S. multi-national corporations to repatriate accumulated income abroad by providing
an 85% dividends received deduction for certain dividends from controlled foreign corporations. Based
on this legislation and 2005 guidance by the Department of Treasury, we repatriated $52 million of
foreign earnings. A charge of $7.3 million related to the repatriation is included in income taxes
(from continuing operations) in the accompanying Consolidated Statements of Operations. Prior to
the passage of the AJCA, the undistributed earnings of our foreign subsidiaries, with the exception
of approximately $40 million, were considered to be indefinitely reinvested, and in accordance with
APB Opinion No. 23 (APB 23), Accounting for Income Taxes - Special Areas, no provision
for U.S. federal or state income taxes had been provided on these undistributed earnings. The remaining
offshore earnings, with the exception of approximately $40 million, are intended to be indefinitely
invested abroad and no provision for U.S. federal or state income taxes has been provided in accordance with APB 23.
We have not provided for U.S. federal and state income and foreign withholding taxes on approximately
$419.0 million of non-U.S. subsidiaries undistributed earnings (as calculated for income tax
purposes) as of December 29, 2006. Such earnings include pre-acquisition earnings of foreign entities
acquired through stock purchases and are intended to be reinvested outside of the U.S. indefinitely.
Unrecognized deferred taxes on these undistributed earnings were estimated to be approximately $119.0
million. Where excess cash has accumulated in our non-U.S. subsidiaries and it is advantageous for
tax reasons, subsidiary earnings may be remitted.
(9) Employee Benefit Plans
We maintain defined benefit pension plans for certain of our U.S. employees. Certain of our non-U.S.
subsidiaries have varying types of retirement plans providing benefits for substantially all of their
employees. Benefits are based on years of service and average final compensation. In 2006 and 2005,
we began to aggregate the retirement plans of ERA and LK, respectively. For U.S. plans we fund at
least the minimum amount required by the Employee Retirement Income Security Act of 1974. We do not
provide any post-retirement benefits outside of the U.S. except as may be required by certain jurisdictions.
Depending on the investment performance of plan assets and other factors, the funding amount in any
given year may be zero.
Pension expense was as follows (in thousands): |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
Principal defined benefit plans |
$ |
1,305 |
|
$ |
30 |
|
$ |
1,426 |
|
|
Other employee benefit plans |
|
703 |
|
|
1,191 |
|
|
410 |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,008 |
|
$ |
1,221 |
|
$ |
1,836 |
|
|
|
|
|
|
|
|
|
|
|
During 2005, a curtailment gain of $1.1 million was recognized as a result of the reduced estimated
future service period of the severed personnel of the discontinued operations. There were no curtailment
gains or losses for the year ended December 31, 2004.
The net expense for the principal defined benefit pension plans included the following components (in thousands): |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
Service cost |
$ |
1,310 |
|
$ |
1,585 |
|
$ |
1,481 |
|
|
Interest cost |
|
2,244 |
|
|
2,161 |
|
|
2,073 |
|
|
Expected return on plan assets |
|
(2,442 |
) |
|
(2,354 |
) |
|
(2,239 |
) |
|
Amortization of transition obligation |
|
10 |
|
|
13 |
|
|
17 |
|
|
Amortization of prior service cost |
|
270 |
|
|
271 |
|
|
270 |
|
|
Recognized actuarial (gain) loss |
|
(87 |
) |
|
(1,646 |
) |
|
(176 |
) |
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
$ |
1,305 |
|
$ |
30 |
|
$ |
1,426 |
|
|
|
|
|
|
|
|
|
|
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(9) Employee Benefit Plans, continued
The financial status of the principal defined benefit plans at December 29, 2006 and December 30, 2005,
was as follows (in thousands): |
|
|
2006 |
|
2005 |
|
|
|
|
|
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year |
$ |
41,601 |
|
$ |
38,969 |
|
|
|
|
|
|
|
|
Service cost |
|
1,310 |
|
|
1,585 |
|
Interest cost |
|
2,244 |
|
|
2,161 |
|
Plan amendments |
|
(134 |
) |
|
(1,654 |
) |
Actuarial loss |
|
(2,101 |
) |
|
1,031 |
|
Plans not previously aggregated |
|
785 |
|
|
761 |
|
Benefits paid |
|
(1,407 |
) |
|
(1,252 |
) |
|
|
|
|
|
Projected benefit obligation at end of year |
$ |
42,298 |
|
$ |
41,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
$ |
31,424 |
|
$ |
30,504 |
|
|
|
|
|
|
|
|
Actual return on plan assets |
|
3,752 |
|
|
2,049 |
|
Employer contributions |
|
232 |
|
|
104 |
|
Plans not previously aggregated |
|
7 |
|
|
19 |
|
Benefits paid |
|
(1,407 |
) |
|
(1,252 |
) |
|
|
|
|
|
Fair value of plan assets at end of year |
$ |
34,008 |
|
$ |
31,424 |
|
|
|
|
|
|
|
|
Funded status |
$ |
(8,290 |
) |
$ |
(10,177 |
) |
Unrecognized actuarial gains |
|
|
|
|
(347 |
) |
Unrecognized prior service cost |
|
|
|
|
2,618 |
|
Unrecognized transition obligation |
|
|
|
|
95 |
|
Intangible asset |
|
|
|
|
(3 |
) |
|
|
|
|
|
Accrued pension costs at the end of the year |
$ |
(8,290 |
) |
$ |
(7,814 |
) |
|
|
|
|
|
|
|
Accumulated benefit obligation |
$ |
36,509 |
|
$ |
34,935 |
|
|
|
|
|
|
|
With
the adoption of SFAS 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, the unrecognized components of net periodic pension cost have been included in accumulated other
comprehensive income for the fiscal year ended December 29, 2006. All effects of applying SFAS 158
to the current years statement of financial position, are as follows (in thousands): |
|
|
Before Application
of SFAS 158 |
|
Adjustments |
|
After Application
of SFAS 158 |
|
|
|
|
|
|
|
|
Other assets |
$ |
10,538 |
|
$ |
(797 |
) |
$ |
9,741 |
|
Deferred income taxes |
|
16,738 |
|
|
(603 |
) |
|
16,135 |
|
|
|
|
|
|
|
|
Total assets |
$ |
772,280 |
|
$ |
(1,400 |
) |
$ |
770,880 |
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
$ |
16,690 |
|
$ |
(2,376 |
) |
$ |
14,314 |
|
|
|
|
|
|
|
|
Total liabilities |
$ |
283,136 |
|
$ |
(2,376 |
) |
$ |
280,760 |
|
|
|
|
|
|
|
|
|
|
Minority interest |
$ |
9,691 |
|
$ |
|
|
$ |
9,691 |
|
|
|
|
|
|
|
|
|
|
Accumulated other
comprehensive income |
$ |
17,450 |
|
$ |
976 |
|
$ |
18,426 |
|
|
|
|
|
|
|
|
Total shareholders equity |
$ |
479,453 |
|
$ |
976 |
|
$ |
480,429 |
|
|
|
|
|
|
|
|
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(9) Employee Benefit Plans, continued
The aggregate benefit obligation, accumulated benefit obligation and fair value of plan assets for
plans with benefit obligations in excess of plan assets, as of the measurement date of each statement
of financial position presented, is as follows (in thousands): |
|
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
Benefit obligation |
$ |
42,298 |
|
$ |
41,601 |
|
|
Accumulated benefit obligation |
$ |
36,509 |
|
$ |
34,935 |
|
|
Plan assets |
$ |
34,008 |
|
$ |
31,424 |
|
|
|
The principal defined benefit plan weighted-average asset allocations at December 29, 2006 and December
30, 2005 were as follows: |
|
|
Asset Category |
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
71 |
% |
|
70 |
% |
|
|
Debt securities |
|
28 |
% |
|
29 |
% |
|
|
Other |
|
1 |
% |
|
1 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
|
Our asset allocation policy for our primary benefit plans is for a target investment of 65% to 75%
equity securities and 25% to 35% fixed income securities. The goal of our asset investment policy
is to achieve a return in excess of the rate of inflation with acceptable levels of volatility. We
utilize professionally managed mutual funds to invest our assets. Our pension assets are invested
in a variety of small and large capitalization domestic and international mutual stock funds and
a bond fund.
To develop the expected long-term rate of return on assets assumption, we considered historical returns
and the future expectations for returns for each asset class, weighted by the target asset allocations.
This resulted in the selection of the 8.0% long-term rate of return on assets assumption.
Assumptions used to develop data were as follows: |
|
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
5.75 |
% |
|
5.50 |
% |
|
|
Annual compensation increases |
|
4.25 |
% |
|
4.25 |
% |
|
|
Expected long-term rates of return on plan assets |
|
8.00 |
% |
|
8.00 |
% |
|
|
Our measurement date is the last day of the year.
We expect to contribute approximately $0.2 million to the principal defined benefit plans in 2007.
Additionally, we expect to make benefit payments in 2007 of approximately $1.4 million from our principal
defined benefit plans. The following table shows expected benefit payments for the next five fiscal
years and the aggregate five years thereafter from the principal defined benefit plans (in millions): |
|
|
Year Ending |
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
1.4 |
|
|
|
2008 |
|
|
1.6 |
|
|
|
2009 |
|
|
1.8 |
|
|
|
2010 |
|
|
2.0 |
|
|
|
2011 |
|
|
2.4 |
|
|
|
Thereafter |
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
$ |
22.6 |
|
|
|
|
|
|
|
|
|
We maintain defined contribution 401(k) plans covering substantially all U.S. employees not affected
by certain collective bargaining agreements. Under our 401(k) plans, we contributed a matching amount
equal to $1.00 for each $1.00 of the participants contribution, not in excess of a maximum
of 4% to 6% of the participants annual wages, depending on the plan. The total contribution
expense under the 401(k) plans for employees of continuing operations was $1,270,000, $979,000, and
$1,414,000 in 2006, 2005 and 2004, respectively. |
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(10) Asset Retirement Obligations
We
adopted Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47) as of December 30, 2005. FIN 47 clarifies the term, conditional asset retirement
obligation, as used in SFAS No. 143, Accounting for Asset Retirement Obligations, which refers to a legal obligation to perform an asset retirement activity in which the timing and/or
method of settlement are conditional on a future event. SFAS No. 143 requires that the fair value
of a legal liability for an asset retirement obligation be recorded in the period in which it is
incurred if a reasonable estimate of fair value can be made. Upon recognition of a liability, the
asset retirement cost is recorded as an increase in the carrying value of the related long-lived
asset and then depreciated over the life of the asset. Our asset retirement obligations arise primarily
from legal requirements to decontaminate buildings, machinery and equipment at the time we dispose
of or replace them. We also have leased facilities where we have asset retirement obligations from
contractual commitments to remove leasehold improvements and return the property to a specified condition
when the lease terminates. As a result of our evaluation of our asset retirement obligations, we recorded
a $1.0 million non-current liability for asset retirement obligations and a $0.3 million increase
in the carrying value of the related assets, net of $0.3 million of accumulated depreciation as of
December 30, 2005. The cumulative effect recorded in 2005 upon the adoption of this interpretation
was $0.6 million, net of taxes of $0.3 million.
The following table presents our liability for asset retirement obligations as if this interpretation
had been adopted on December 31, 2004 (in thousands): |
|
|
Balance, December 31, 2004 |
$ |
1,003 |
|
|
|
Balance, December 30, 2005 |
$ |
960 |
|
|
|
Balance, December 29, 2006 |
$ |
1,136 |
|
|
|
The following table presents our net (loss) income and basic and diluted earnings per share as if the
provisions of FIN 47 had been adopted on December 31, 2004 (in thousands, except per share amounts): |
|
|
2005 |
|
2004 |
|
|
|
|
|
|
Net (loss) earnings - as reported |
$ |
(25,464 |
) |
$ |
6,928 |
|
Adjustments: |
|
|
|
|
|
|
Cumulative effect of accounting change, net of income
taxes as reported |
|
564 |
|
|
|
|
Pro forma earnings effects, net of income taxes |
|
(82 |
) |
|
(80 |
) |
|
|
|
|
|
Net adjustments |
|
482 |
|
|
(80 |
) |
|
|
|
|
|
|
|
Net earnings (loss) adjusted |
$ |
(24,982 |
) |
$ |
6,848 |
|
|
|
|
|
|
|
|
Basic net income (loss) per share - as reported |
$ |
(0.63 |
) |
$ |
0.17 |
|
Basic net income (loss) per share - adjusted |
$ |
(0.62 |
) |
$ |
0.17 |
|
Diluted net income (loss) per share as reported |
$ |
(0.63 |
) |
$ |
0.17 |
|
Diluted net income (loss) per share adjusted |
$ |
(0.62 |
) |
$ |
0.17 |
|
|
(11) Commitments and Contingencies
We conduct a portion of our operations from leased premises and also lease certain equipment under
operating leases. Total rental expense amounts for the years ended December 29, 2006, December 30,
2005 and December 31, 2004 were $9.2 million, $7.6 million and $7.6 million, respectively.
The aggregate minimum rental commitments under non-cancelable leases in effect at December 29, 2006
were as follows (in thousands): |
|
|
Year Ending |
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
10,131 |
|
|
|
2008 |
|
|
7,652 |
|
|
|
2009 |
|
|
5,527 |
|
|
|
2010 |
|
|
2,263 |
|
|
|
2011 |
|
|
1,641 |
|
|
|
Thereafter |
|
|
3,953 |
|
|
|
|
|
|
|
|
|
|
|
$ |
31,167 |
|
|
|
|
|
|
|
|
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(11) Commitments and Contingencies, continued
The aggregate minimum rental commitments schedule does not include $135.8 million due under precious
metal consignment-type leases. We expect to make payments under such leases as the precious metal
is purchased in 2007 upon sale of the precious metal to customers.
We had four standby letters of credit outstanding at December 29, 2006 in the aggregate amount of $1.4
million securing transactions entered into in the ordinary course of business. We had commercial
commitments outstanding at December 29, 2006 of approximately $135.8 million due under precious metal
consignment-type leases. We had no other off-balance-sheet financing arrangements.
We are aware of environmental issues at two locations. In Sinsheim, Germany, there is shallow groundwater
and soil contamination that is naturally decreasing over time. The German environmental authorities
have not required corrective action to date. In addition, property in Leesburg, Indiana, which was
acquired with our acquisition of GTI in 1998, is the subject of a 1994 Corrective Action Order to
GTI by the Indiana Department of Environmental Management (IDEM). Although we sold the property in early 2005, we retained the responsibility for existing
environmental issues at the site. The order requires us to investigate and take corrective actions. Substantially all
of the corrective actions relating to impacted soil have been completed and IDEM has issued us no
further action letters for all of the remediated areas. We anticipate making additional environmental
expenditures in the future to continue our environmental studies, analysis and remediation activities
with respect to the impacted groundwater. Based on current knowledge, we do not believe that any
future expenses or liabilities associated with environmental remediation will have a material impact
on our operations or our consolidated financial position, liquidity or operating results. However,
we may be subject to additional costs and liabilities if the scope of the contamination or the cost
of remediation exceeds our current expectations.
We accrue costs associated with environmental and legal matters when they become probable and reasonably
estimable. Accruals are established based on the estimated undiscounted cash flows to settle the
obligations and are not reduced by any potential recoveries from insurance or other indemnification
claims. We believe that any ultimate liability with respect to these actions in excess of amounts
provided will not materially affect our operations or consolidated financial position, liquidity
or operating results.
We are also subject to various lawsuits, claims and proceedings which arise in the ordinary course
of our business. These actions include routine tax audits and assessments occurring throughout numerous
jurisdictions on a worldwide basis. We do not believe that the outcome of any of these actions will
have a material adverse effect on our financial results.
(12) Shareholders Equity
All retained
earnings are free from legal or contractual restrictions as of December 29,
2006, with the exception of approximately $21.4 million of retained earnings,
primarily in the PRC that are restricted in accordance with Section 58 of the
PRC Foreign Investment Enterprises Law. Included in the $21.4 million is $2.2
million of retained earnings of FRE of which we own approximately 71%. The
restriction applies to 10% of our net earnings in the PRC, limited to 50% of the
total capital invested in the PRC.
Effective
August 1, 2001, we adopted a new qualified, non-compensatory employee stock purchase plan that provides
substantially all employees an opportunity to purchase common stock. The purchase price is equal
to 85% of the fair value of the common stock on either the first day of the offering period or the
last day of the purchase period, whichever is lower. The offering periods and purchase periods are
defined by the plan, but were each six months in duration. In connection with this plan, 1,000,000
shares of common stock are reserved for issuance under the plan. In 2004, employees purchased approximately
45,000 shares under the plan. During 2004, the operation of the ESPP was suspended following an evaluation of its related expense and perceived value by employees.
We have a Shareholder Rights Plan. The Rights are currently not exercisable, and automatically trade
with our common shares. However, after a person or group has acquired 15% or more of our common shares,
the Rights will become exercisable, and separate certificates representing the Rights will be distributed.
In the event that any person or group acquires 15% of our common shares, each holder of two Rights
(other than the Rights of the acquiring person) will have the right to receive, for $300, that number
of common shares having a market value equal to two times the exercise price of the Rights. Alternatively,
in the event that, at any time following the date in which a person or group acquires ownership of
15% or more of our common shares, and we are acquired in a merger or other business combination |
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(12) Shareholders Equity, continued
transaction, or 50% or more of our consolidated assets or earning power is sold, each holder of two
Rights (other than the Rights of such acquiring person or group) will thereafter have the right to
receive, upon exercise, that number of shares of common stock of the acquiring entity having a then
market value equal to two times the exercise price of the Rights. The Rights may be redeemed by us
at a price of $0.005 per Right at any time prior to becoming exercisable. Rights that are not redeemed
or exercised expire on September 9, 2008.
(13) Stock-Based Compensation
We have an incentive compensation plan for our employees. One component of this plan is restricted
stock, which grants the recipient the right of ownership of our common stock, conditional on continued
employment for a specified period. Another component is stock options. On December 31, 2005, we adopted
SFAS 123(R), which replaces SFAS 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R),
compensation cost relating to stock-based payment transactions is recognized in the financial statements,
and is based on the fair value of the equity or liability instruments issued. SFAS No. 123(R)
applies to all of our outstanding unvested stock-based payment awards as of December 31, 2005 and
all prior awards using the modified prospective transition method without restatement of prior periods.
As we had previously adopted SFAS 123, as amended by SFAS 148, at the beginning of the 2003 fiscal
year, whereby compensation expense was recorded for all awards subsequent to adoption, our adoption
did not significantly impact our financial position or our results of operations. Upon adoption of
SFAS 123(R), the cumulative effect recorded in the year ended December 29, 2006 was a gain of $0.1
million, net of taxes.
The following table presents the stock-based compensation expense included in the Consolidated Statements
of Operations: |
|
|
|
Twelve Months Ended
December 29, December 30, December 31, |
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
$ |
2,540 |
|
$ |
2,555 |
|
$ |
2,456 |
|
|
|
Stock options |
|
553 |
|
|
652 |
|
|
784 |
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation included in
selling, general and administrative expenses |
|
3,093 |
|
|
3,207 |
|
|
3,240 |
|
|
|
Income tax benefit |
|
(1,026 |
) |
|
(1,056 |
) |
|
(1,054 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total after-tax stock-based compensation
expense |
$ |
2,067 |
|
$ |
2,151 |
|
$ |
2,186 |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock: The value of restricted stock issued is based on the market price of the stock at the award
date. Shares are held by us until the continued employment requirement has been attained. The market
value of the shares at the date of grant is charged to expense on a straight-line basis over the
vesting period. Cash awards, which are intended to assist recipients with their resulting personal
tax liability, are based on the market value of the shares and are accrued over the vesting period.
If the recipient makes an election under Section 83(b) of the Internal Revenue Code, the expense
related to the cash award is fixed based on the value of the awarded stock on the grant date. If
the recipient does not make the election under Section 83(b), the expense related to the cash award
is variable based on the current market value of the shares limited to 65% of the value as of the
date of grant.
A summary of the restricted stock activity is as follows (in thousands, except per share data): |
|
|
|
Shares |
|
Weighted
Average Grant
Price
(Per Share) |
|
|
|
|
|
|
|
|
|
|
Nonvested at December 30, 2005 |
|
209 |
|
$ |
18.79 |
|
|
|
Granted |
|
86 |
|
$ |
23.48 |
|
|
|
Vested |
|
(82 |
) |
$ |
19.59 |
|
|
|
Forfeited/cancelled |
|
(8 |
) |
$ |
18.00 |
|
|
|
|
|
|
|
|
|
|
Nonvested at December 29, 2006 |
|
205 |
|
$ |
20.48 |
|
|
|
|
|
|
|
|
|
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(13) Stock-Based Compensation, continued
As of December 29, 2006, there was approximately $1.9 million of total unrecognized compensation cost
related to restricted stock grants. This unrecognized compensation is expected to be recognized over
a weighted-average period of approximately 2.1 years.
Stock Options: Stock options are granted at no cost to the employee and cannot be granted at a price lower
than the fair market value at date of grant. These options expire seven years from the date of grant
and vest equally over four years. There were no options issued during the year ended December 29,
2006 or during the year ended December 30, 2005. We value our stock options according to the fair
value method using the Black-Scholes option-pricing model.
A summary of the stock options activity is as follows (in thousands, except per share data): |
|
|
Shares |
|
Weighted
Average Exercise
Price
(Per Share) |
|
Aggregate
Intrinsic
Value |
|
|
|
|
|
|
|
|
Outstanding as of December 30, 2005 |
|
475 |
|
$ |
19.31 |
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
Exercised |
|
(113 |
) |
$ |
19.95 |
|
|
|
|
Forfeited/expired |
|
(67 |
) |
$ |
19.65 |
|
|
|
|
Outstanding as of December 29, 2006 |
|
295 |
|
$ |
18.99 |
|
$ |
2,257 |
|
Exercisable at December 29, 2006 |
|
238 |
|
$ |
19.41 |
|
$ |
1,724 |
|
|
The exercise prices of the options outstanding as of December 29, 2006 range from $16.55 per share
to $30.48 per share. As of December 29, 2006, there was $0.6 million of total unrecognized compensation
cost related to option grants. This unrecognized compensation is expected to be recognized over a
weighted-average period of approximately 1.3 years.
During the twelve months ended December 29, 2006, cash received from stock
options exercised was $2.4 million. The total intrinsic value of stock options
exercised during the twelve months ended December 29, 2006 was $0.9 million.
There were no stock options exercised during the twelve months ended December
30, 2005. SFAS No. 123(R) requires
that tax benefits from deductions in excess of the compensation cost of stock
options exercised be classified as a cash inflow from financing, which has
caused current year net cash provided by operating activities to be lower and
net cash used in financing activities to be higher by $0.1 million. Prior to
adopting SFAS No. 123(R), we presented these benefits in the operating section
of the Consolidated Statements of Cash Flows.
No amounts of stock-based compensation cost have been capitalized into inventory or other assets during
the twelve months ended December 29, 2006.
We did not issue any stock options in 2006 or 2005. The per share weighted average fair value of stock
options granted during 2004 was calculated as $9.81, on the date of grant, using the Black-Scholes
option-pricing model. The weighted average assumptions based on the date of grant are as follows: |
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
Dividend yield |
|
0.0 |
% |
|
|
Volatility |
|
65.0 |
% |
|
|
Risk-free interest rate |
|
4.1 |
% |
|
|
Expected life (years) |
|
4.0 |
|
|
|
(14) Earnings (Loss) Per Share |
|
Basic
earnings (loss) per share were calculated by dividing earnings (loss) by the weighted average number
of common shares outstanding during the year (excluding restricted shares which are considered to
be contingently issuable). We had unvested restricted shares outstanding of approximately 205,000,
209,000 and 220,000 as of December 29, 2006, December 30, 2005 and December 31, 2004 respectively,
which generally vest over a three-year term. For calculating diluted earnings per share, common share
equivalents and restricted stock outstanding were added to the weighted average number of common
shares outstanding. Common share equivalents result from outstanding |
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
|
|
|
(14) Earnings (Loss) Per Share, continued |
|
options to purchase common stock and the amount of compensation cost attributable to future services
not yet recognized as calculated using the treasury stock method. However, in years when we have
a net loss, or the exercise price of stock options, by grant, are greater than the actual stock price
as of the end of the year, those stock options will be excluded from the calculation of common share
equivalents. For the year ended December 29, 2006, we included approximately 200,000 common stock
equivalents in the calculation of earnings per share. As we had a net loss for the year ended December
30, 2005, we did not include any common share equivalents in the calculation of earnings per share.
For the year ended December 31, 2004, we included approximately 19,000 common stock equivalents and
excluded approximately 282,000 stock options from the calculation of earnings per share.
Earnings per share calculations were as follows (in thousands, except per share amounts): |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
before cumulative effect of accounting change |
$ |
56,895 |
|
$ |
(24,428 |
) |
$ |
7,107 |
|
Cumulative effect of accounting change |
|
75 |
|
|
(564 |
) |
|
|
|
Net income (loss) from discontinued operations |
|
233 |
|
|
(472 |
) |
|
(179 |
) |
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
57,203 |
|
$ |
(25,464 |
) |
$ |
6,928 |
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
Shares |
|
40,394 |
|
|
40,297 |
|
|
40,178 |
|
Continuing operations |
$ |
1.41 |
|
$ |
(0.61 |
) |
$ |
0.18 |
|
Change in accounting principle |
|
0.00 |
|
|
(0.01 |
) |
|
|
|
Discontinued operations |
|
0.01 |
|
|
(0.01 |
) |
|
(0.01 |
) |
|
|
|
|
|
|
|
Per share amount |
$ |
1.42 |
|
$ |
(0.63 |
) |
$ |
0.17 |
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
Shares |
|
40,594 |
|
|
40,297 |
|
|
40,411 |
|
Continuing operations |
$ |
1.40 |
|
$ |
(0.61 |
) |
$ |
0.18 |
|
Change in accounting principle |
|
0.00 |
|
|
(0.01 |
) |
|
|
|
Discontinued operations |
|
0.01 |
|
|
(0.01 |
) |
|
(0.01 |
) |
|
|
|
|
|
|
|
Per share amount |
$ |
1.41 |
|
$ |
(0.63 |
) |
$ |
0.17 |
|
|
|
|
|
|
|
|
|
(15) Research, Development and Engineering Expenses
Research, development and engineering expenses are included in selling, general and administrative
expenses and were $39.6 million, $25.5 million and $22.5 million in 2006, 2005 and 2004, respectively.
RD&E includes costs associated with new product development, product and process improvement,
engineering follow-through during early stages of production, design of tools and dies, and the adaptation
of existing technology to specific situations and customer requirements. The research and development
component of RD&E, which generally includes only those costs associated with new technology,
new products or significant changes to current products or processes, was $33.8 million, $20.9 million
and $16.5 million in 2006, 2005 and 2004, respectively.
(16) Severance and Asset Impairment Expense
We implemented numerous restructuring initiatives during 2006, 2005 and 2004 in order to reduce our
cost structure and capacity.
In
the year ended December 29, 2006, we accrued $8.8 million for a number of actions to further streamline
operations at Pulse and AMI Doduco. These include severance and related payments to manufacturing
and support personnel of $6.8 million and $2.0 million to write down the value of certain fixed assets
to their disposal values. The majority of these accruals will be paid by March 30, 2007, except for
remaining lease or severance payments to be made over a specified term.
In the year ended December 30, 2005, we accrued $7.0 million for a number of actions to streamline
operations at Pulse and AMI Doduco. These include $4.4 million related to the termination of manufacturing
and support personnel |
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(16) Severance and Asset Impairment Expense, continued
and $2.6 million to write down the value of certain fixed assets to their disposal values. The majority
of these accruals were paid by March 31, 2006, except for remaining lease or severance payments to
be made over a specified term. Additionally, we recorded a $46.0 million impairment charge of Pulse
consumer division assets consisting of $25.6 million of goodwill, $11.5 million of identifiable intangibles,
and $8.9 million of property, plant, and equipment. These impairments resulted from updated cash
flow projections which reflect the shift of production by Pulse to China-based locations, decreasing
average selling prices for television transformers resulting from competition with Asian companies selling in U.S. dollars, and the recent weakness in the European television market for flyback transformers.
In the year ended December 31, 2004, we accrued $9.0 million which included severance and related payments
of $7.5 million to terminate manufacturing and support personnel and $1.5 million to write down
the
value of certain fixed assets to their disposal values. The vast majority of these accruals
were
utilized by the end of the second quarter in 2005. Additionally, we recorded an intangible
asset
impairment of $18.9 million related to acquired intangibles. These intangible asset impairments
resulted
from updated cash flow projections relating to technology and customer relationships,
and reflect,
among other things, shifting product mixes, changes among major customers and continuing
pressures
on selling prices in the consumer and telecommunication product divisions of the Pulse segment.
As a result of our continuing focus on both economic and operating profit, we will continue to aggressively
size both Pulse and AMI Doduco so that costs are optimally matched to current and anticipated future
revenue and unit demand, and as we pursue additional growth opportunities. The amounts of additional
charges will depend on specific actions taken. The actions taken over the past three years such as
plant closures, plant relocations, asset impairments and reduction in personnel worldwide have resulted
in the elimination of a variety of costs. The majority of these costs represent the annual salaries
and benefits of terminated employees, both those directly related to manufacturing and those providing
selling, general and administrative services. The eliminated costs also include depreciation savings
from disposed equipment. |
|
|
Our restructuring charges are summarized for 2006 as follows (in thousands): |
|
|
|
|
AMI Doduco |
|
Pulse |
|
Total |
|
|
|
|
|
|
|
|
|
|
Balance accrued at December 30, 2005 |
$ |
1.6 |
|
$ |
1.6 |
|
$ |
3.2 |
|
|
Accrued during the twelve months ended
December 29, 2006 |
|
1.6 |
|
|
7.2 |
|
|
8.8 |
|
|
Severance and other cash payments |
|
(2.2 |
) |
|
(5.7 |
) |
|
(7.9 |
) |
|
Non-cash changes |
|
(0.5 |
) |
|
0.7 |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
Balance accrued at December 29, 2006 |
$ |
0.5 |
|
$ |
3.8 |
|
$ |
4.3 |
|
|
|
|
|
|
|
|
|
|
(17) Supplementary Information
The following amounts were charged directly to costs and expenses (in thousands): |
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
Depreciation |
$ |
29,081 |
|
$ |
20,105 |
|
$ |
19,468 |
|
|
Amortization of intangible assets |
|
4,802 |
|
|
2,053 |
|
|
4,477 |
|
|
Advertising |
|
666 |
|
|
265 |
|
|
376 |
|
|
Repairs and maintenance |
|
19,589 |
|
|
15,554 |
|
|
13,376 |
|
|
Bad debt expense |
|
913 |
|
|
334 |
|
|
544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments made: |
|
|
|
|
|
|
|
|
|
|
Income taxes |
$ |
4,462 |
|
$ |
5,435 |
|
$ |
4,063 |
|
|
Interest |
|
6,586 |
|
|
2,041 |
|
|
1,975 |
|
|
Accumulated other comprehensive income as disclosed in the Consolidated Statements of Changes in Shareholders
Equity consists principally of foreign currency translation items. |
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(18) Quarterly Financial Data (Unaudited)
Quarterly results of operations (unaudited) for 2006 and 2005 are summarized as follows (in thousands, except per share data): |
|
|
|
|
Quarter Ended |
|
|
|
|
|
|
|
|
|
|
|
|
2006: |
Mar. 31 |
|
June 30 |
|
Sept. 29 |
|
Dec. 29 |
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
221,093 |
|
$ |
239,238 |
|
$ |
257,683 |
|
$ |
236,082 |
|
Gross profit |
|
51,193 |
|
|
56,408 |
|
|
61,625 |
|
|
49,864 |
|
Earnings from continuing operations before taxes, minority
interest, and cumulative effect of accounting change |
|
15,048 |
|
|
20,124 |
|
|
16,994 |
|
|
17,919 |
|
Net earnings |
|
11,964 |
|
|
15,222 |
|
|
15,245 |
|
|
14,772 |
|
Basic |
$ |
0.30 |
|
$ |
0.38 |
|
$ |
0.38 |
|
$ |
0.36 |
|
Diluted |
$ |
0.30 |
|
$ |
0.38 |
|
$ |
0.38 |
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005: |
|
Apr. 1 |
|
|
July 1 |
|
|
Sept. 30 |
|
|
Dec. 30 |
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
141,391 |
|
$ |
143,305 |
|
$ |
147,217 |
|
$ |
184,465 |
|
Gross profit |
|
33,969 |
|
|
32,539 |
|
|
34,006 |
|
|
42,329 |
|
Earnings (loss) from continuing operations before taxes,
minority interest, and cumulative effect of accounting change |
|
7,245 |
|
|
(42,164 |
) |
|
7,168 |
|
|
10,423 |
|
Net earnings (loss) |
|
5,109 |
|
|
(42,914 |
) |
|
4,589 |
|
|
7,752 |
|
Basic |
$ |
0.13 |
|
$ |
(1.06 |
) |
$ |
0.11 |
|
$ |
0.19 |
|
Diluted |
$ |
0.13 |
|
$ |
(1.06 |
) |
$ |
0.11 |
|
$ |
0.19 |
|
|
(19) Segment and Geographical Information
We operate our business in two segments: the Electronic Components Segment, which operates under the
name Pulse, and the Electrical Contact Products Segment, which operates under the name AMI Doduco.
We refer to these segments as ECS or Pulse, and ECPS or AMI Doduco, respectively. Each segment is
managed by a President who reports to our Chief Executive Officer.
Pulse designs and manufactures a wide variety of highly-customized electronic components. Passive magnetics-based
components manage and regulate electronic signals and power for use in a variety of devices by filtering
out radio frequency interference and adjusting and ensuring proper current and voltage. The passive
magnetics-based products are often referred to as chokes, inductors, filters and transformers. Wireless
antennas and antenna modules capture communications signals in handsets and a variety of other mobile
and portable devices. Pulse sells its products to multinational original equipment manufacturers,
contract manufacturers and distributors. Through a majority-owned subsidiary, Pulse also supplies
a variety of electronic connectors, modules, wireless antennas and other accessories.
AMI Doduco is a global manufacturer of a full range of electrical contact products, from contact materials
to completed contact subassemblies. Contact products complete or interrupt electrical circuits in
virtually every electrical device. AMI Doduco provides its customers with a broad array of highly
engineered products and tools designed to meet unique customer needs.
Amounts are in thousands and exclude discontinued operations: |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
Pulse |
$ |
627,505 |
|
$ |
361,552 |
|
$ |
320,154 |
|
AMI Doduco |
|
326,591 |
|
|
254,826 |
|
|
241,144 |
|
|
|
|
|
|
|
|
Total |
$ |
954,096 |
|
$ |
616,378 |
|
$ |
561,298 |
|
|
|
|
|
|
|
|
Operating profit (loss) before income taxes |
|
|
|
|
|
|
|
|
|
Pulse |
$ |
54,037 |
|
$ |
(20,218 |
) |
$ |
9,485 |
|
AMI Doduco |
|
17,253 |
|
|
3,228 |
|
|
(622 |
) |
|
|
|
|
|
|
|
Total operating profit (loss) |
|
71,290 |
|
|
(16,990 |
) |
|
8,863 |
|
Items not included in segment profit (1) |
|
(1,204 |
) |
|
(338 |
) |
|
2,428 |
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes,
minority interest and cumulative effect of accounting change |
$ |
70,086 |
|
$ |
(17,328 |
) |
$ |
11,291 |
|
|
|
|
|
|
|
|
|
|
(1) |
Includes interest income, interest expense and other non-operating items disclosed in our Consolidated
Statements of Operations. We exclude these items when measuring segment operating profit. |
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(19) Segment and Geographical Information, continued
Amounts are in thousands and exclude discontinued operations: |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Assets at end of year |
|
|
|
|
|
|
|
|
|
Pulse |
$ |
521,810 |
|
$ |
388,394 |
|
$ |
326,131 |
|
AMI Doduco |
|
129,819 |
|
|
101,854 |
|
|
126,733 |
|
|
|
|
|
|
|
|
Segment assets |
|
651,629 |
|
|
490,248 |
|
|
452,864 |
|
Assets not included in Segment assets (1) |
|
119,251 |
|
|
196,054 |
|
|
183,664 |
|
|
|
|
|
|
|
|
Total |
$ |
770,880 |
|
$ |
686,302 |
|
$ |
636,528 |
|
|
|
|
|
|
|
|
|
Capital expenditures (2) |
|
|
|
|
|
|
|
|
|
Pulse |
$ |
20,769 |
|
$ |
29,686 |
|
$ |
27,962 |
|
AMI Doduco |
|
4,588 |
|
|
4,365 |
|
|
4,172 |
|
|
|
|
|
|
|
|
Total |
$ |
25,357 |
|
$ |
34,051 |
|
$ |
32,134 |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Pulse |
$ |
28,332 |
|
$ |
16,440 |
|
$ |
17,281 |
|
AMI Doduco |
|
5,551 |
|
|
5,718 |
|
|
6,664 |
|
|
|
|
|
|
|
|
Total |
$ |
33,883 |
|
$ |
22,158 |
|
$ |
23,945 |
|
|
|
|
|
|
|
|
|
|
(1) |
Cash and cash equivalents are the primary corporate assets. We exclude cash and cash equivalents, net
deferred tax assets, and intercompany receivables when measuring segment assets. |
|
|
(2) |
During the past three years, we have acquired several companies and majority interests. We have included
acquired property, plant and equipment in these capital expenditure amounts. |
|
We
have no significant intercompany revenue between our segments. We do not use income taxes when measuring
segment results; however, we allocate income taxes to our segments to determine certain performance
measures. These performance measures include economic profit. The following pro forma disclosure
of segment income tax expense is based on simplified assumptions and includes allocations of corporate
tax items. These allocations are based on the proportionate share of total tax expense for each segment,
obtained by multiplying our respective segments operating profit by the relevant estimated
effective tax rates for the year. The allocated tax (benefit) expense amounts, including the tax
effect of discontinued operations and the cumulative effect of accounting change, for Pulse were,
in thousands, $7,975, $6,107, and $3,014 in 2006, 2005 and 2004, respectively. For AMI Doduco, they
were, in thousands, $3,871, $(517) and $418 in 2006, 2005 and 2004, respectively.
We
sell our products to customers throughout the world. The following table summarizes our sales to
customers in the United States and Germany, where sales are significant. Other countries in which
our sales are not significant are grouped into regions. We attribute customer sales to the country
addressed in the sales invoice.
The
product is usually shipped to the same country. Amounts are in thousands: |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Sales to customers in: |
|
|
|
|
|
|
|
|
|
Europe, other than Germany |
$ |
285,509 |
|
$ |
209,174 |
|
$ |
170,541 |
|
Asia |
|
315,320 |
|
|
181,723 |
|
|
166,032 |
|
United States |
|
124,659 |
|
|
100,207 |
|
|
115,244 |
|
Germany |
|
168,494 |
|
|
87,328 |
|
|
84,284 |
|
Other |
|
60,114 |
|
|
37,946 |
|
|
25,197 |
|
|
|
|
|
|
|
|
Total |
$ |
954,096 |
|
$ |
616,378 |
|
$ |
561,298 |
|
|
|
|
|
|
|
|
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(19) Segment and Geographical Information, continued
The following table includes net property, plant and equipment located in China, Turkey, Germany and
the United States where assets are significant. Other countries in which such assets are not significant
are grouped into regions. Property, plant and equipment represent all of the relevant assets that
have long useful lives. Amounts are in thousands: |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Net property, plant and equipment located in: |
|
|
|
|
|
|
|
|
|
China |
$ |
44,564 |
|
$ |
32,652 |
|
$ |
26,802 |
|
Germany |
|
27,113 |
|
|
15,726 |
|
|
18,894 |
|
Africa |
|
12,957 |
|
|
|
|
|
|
|
Europe, other than Turkey and Germany |
|
12,659 |
|
|
17,487 |
|
|
8,258 |
|
United States |
|
8,085 |
|
|
6,155 |
|
|
10,230 |
|
Asia, other than Turkey and China |
|
103 |
|
|
4,710 |
|
|
5,598 |
|
Turkey |
|
|
|
|
14,434 |
|
|
31,491 |
|
Other |
|
1,865 |
|
|
1,734 |
|
|
903 |
|
|
|
|
|
|
|
|
Total |
$ |
107,346 |
|
$ |
92,898 |
|
$ |
102,176 |
|
|
|
|
|
|
|
|
Technitrol, Inc. and Subsidiaries
Financial Statement Schedule II
Valuation and Qualifying Accounts In thousands |
|
|
|
|
Additions (Deductions) |
|
|
|
|
|
|
|
|
|
|
Description |
Opening
Balance |
|
Charged to
costs and
expenses |
|
Write-offs and
payments |
|
Ending
Balance |
|
|
|
|
|
|
|
|
|
|
Year ended December 29, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for obsolete and slow-moving
inventory |
$ |
11,499 |
|
$ |
8,051 |
|
$ |
(8,295 |
) |
$ |
11,255 |
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts |
$ |
1,663 |
|
$ |
913 |
|
$ |
(743 |
) |
$ |
1,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 30, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for obsolete and slow-moving
inventory |
$ |
11,097 |
|
$ |
5,334 |
|
$ |
(4,932 |
) |
$ |
11,499 |
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts |
$ |
1,715 |
|
$ |
334 |
|
$ |
(386 |
) |
$ |
1,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for obsolete and slow-moving
inventory |
$ |
10,410 |
|
$ |
6,106 |
|
$ |
(5,419 |
) |
$ |
11,097 |
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts |
$ |
2,881 |
|
$ |
544 |
|
$ |
(1,710 |
) |
$ |
1,715 |
|
|
|
|
|
|
|
|
|
|
|
Provision for obsolete and slow-moving inventory as of December 30, 2005 includes approximately $0.3
million as a reduction of the amount charged to costs and expenses to reflect the removal of inventory
provisions of the discontinued operations. The provisions for years ended December 29, 2006 and December
31, 2004 were not affected by the discontinued operations. |
2.1 |
Share Purchase Agreement, dated as of January 9, 2003, by Pulse Electronics (Singapore) Pte. Ltd. and Forfin Holdings B.V. that are signatories thereto (incorporated by reference to Exhibit 2 to our Form 8-K dated January 10, 2003). |
|
|
3.1 |
Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to our Form 10-K for the year ended December 26, 2003) |
|
|
3.3 |
By-laws (incorporated by reference to Exhibit 3.3 to our Form 10-K for the year ended December 27, 2002). |
|
|
4.1 |
Rights Agreement, dated as of August 30, 1996, between Technitrol, Inc. and Registrar and Transfer Company, as Rights Agent (incorporated by reference to Exhibit 3 to our Registration Statement on Form 8-A dated October 24, 1996). |
|
|
4.2 |
Amendment No. 1 to the Rights Agreement, dated March 25, 1998, between Technitrol, Inc. and Registrar and Transfer Company, as Rights Agent (incorporated by reference to Exhibit 4 to our Registration Statement on Form 8-A/A dated April 10, 1998). |
|
|
4.3 |
Amendment No. 2 to the Rights Agreement, dated June 15, 2000, between Technitrol, Inc. and Registrar and Transfer Company, as Rights Agent (incorporated by reference to Exhibit 5 to our Registration Statement on Form 8-A/A dated July 5, 2000). |
|
|
10.1 |
Technitrol, Inc. 2001 Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-8 dated June 28, 2001, File Number 333-64060). |
|
|
10.1(1) |
Form of Stock Option Agreement (incorporated by reference to Exhibit 10.1(1) to our Form 10-Q for the nine months ended October 1, 2004). |
|
|
10.2 |
Technitrol, Inc. Restricted Stock Plan II, as amended and restated as of January 1, 2001 (incorporated by reference to Exhibit C, to our Definitive Proxy on Schedule 14A dated March 28, 2001). |
|
|
10.3 |
Technitrol, Inc. 2001 Stock Option Plan (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-8 dated June 28, 2001, File Number 333-64068). |
|
|
10.4 |
Technitrol, Inc. Board of Directors Stock Plan, as amended (incorporated by reference to Exhibit 10 to our Form 8-K dated May 18, 2005). |
|
|
10.5 |
Credit Agreement, by and among Technitrol, Inc. and certain of its subsidiaries, Bank of America N.A. as Administrative Agent and Lender, and certain other Lenders that are signatories thereto, dated as of October 14, 2005 (incorporated by reference to Exhibit 10.1 to our Form 8-K dated October 20, 2005). |
|
|
10.6 |
Lease Agreement, dated October 15, 1991, between Ridilla-Delmont and AMI Doduco, Inc. (formerly known as Advanced Metallurgy Incorporated), as amended September 21, 2001 (incorporated by reference to Exhibit 10.6 to the Companys Amendment No. 1 to Registration Statement on Form S-3 dated February 28, 2002, File Number 333-81286). |
|
|
10.7 |
Incentive Compensation Plan of Technitrol, Inc. (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to our Registration Statement on Form S-3 filed on February 28, 2002, File Number 333-81286). |
|
|
10.8 |
Technitrol, Inc. Supplemental Retirement Plan, amended and restated January 1, 2002 (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to our Registration Statement on Form S-3 filed on February 28, 2002, File Number 333-81286). |
|
|
10.8(1) |
Technitrol, Inc. Grantor Trust Agreement dated July 5, 2006 between Technitrol, Inc. and Wachovia Bank, National Association (incorporated by reference to Exhibit 10.8(1) to our Form 8-K dated July 11, 2006). |
10.9 |
Agreement between Technitrol, Inc. and James M. Papada, III, dated July 1, 1999, as amended April 23, 2001, relating to the Technitrol, Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.9 to Amendment No. 1 to our Registration Statement on Form S-3 filed on February 28, 2002, File Number 333-81286). |
|
|
10.10 |
Letter Agreement between Technitrol, Inc. and James M. Papada, III, dated April 16, 1999, as amended October 18, 2000 (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to our Registration Statement on Form S-3 filed on February 28, 2002, File Number 333-81286). |
|
|
10.10(1) |
Letter Agreement between Technitrol, Inc. and James M. Papada, III dated July 25, 2006 (incorporated by reference to Exhibit 10.10(1) to our Form 10-Q for six months ended June 30, 2006). |
|
|
10.11 |
Form of Indemnity Agreement (incorporated by reference to Exhibit 10.11 to our Form 10-K for the year ended December 28, 2001). |
|
|
10.12 |
Technitrol Inc. Supplemental Savings Plan (incorporated by reference to Exhibit 10.15 to our Form 10-Q for the nine months ended September 26, 2003). |
|
|
10.13 |
Technitrol, Inc. 401(K) Retirement Savings Plan, as amended (incorporated by reference to post-effective Amendment No. 1, to our Registration Statement on Form S-8 filed on October 31, 2003, File Number 033-35334) |
|
|
10.13(1) |
Amendment No. 1 to Technitrol, Inc. 401(k) Retirement Savings Plan, dated December 31, 2006. |
|
|
10.14 |
Pulse Engineering, Inc. 401(K) Plan as amended (incorporated by reference to post-effective Amendment No. 1, to our Registration Statement on Form S-8 filed on October 31, 2003, File Number 033-94073) |
|
|
10.14(1) |
Amendment No. 1 to Pulse Engineering, Inc. 401(k) Plan, dated December 31, 2006. |
|
|
10.15 |
Amended and Restated Short-Term Incentive Plan (incorporated by reference to Exhibit 10.15 to our Form 10-K for the year ended December 31, 2005). |
|
|
10.16 |
Consignment Agreement dated July 11, 2006 among Technitrol, Inc., AMI Doduco, Inc. and Sovereign Precious Metals, LLC (incorporated by reference to Exhibit 10.16 to our Form 8-K dated July 17, 2006.) |
|
|
10.17 |
Amended and Restated Consignment Agreement dated July 29, 2005, among Fleet Precious Metals Inc. d/b/a Bank of America Precious Metals, Technitrol, Inc. and AMI Doduco, Inc. (incorporated by reference to Exhibit 10.1 to our Form 8-K dated August 2, 2005). |
|
|
10.17(1) |
First Amendment and Agreement dated March 24, 2006 among Bank of America, N.A., Technitrol, Inc. and AMI Doduco, Inc. (incorporated by reference to Exhibit 10.17(1) to our Form 8-K dated March 28, 2006). |
|
|
10.17(2) |
Second Amendment and Agreement dated May 4, 2006 among Bank of America, N.A., Technitrol, Inc. and AMI Doduco, Inc. (incorporated by reference to Exhibit 10.17(2) to our Form 8-K dated May 4, 2006). |
|
|
10.18 |
Fee Consignment and/or Purchase of Silver Agreement dated April 7, 2006 among The Bank of Nova Scotia, Technitrol, Inc. and AMI Doduco, Inc. (incorporated by reference to Exhibit 10.18 to our Form 8-K dated April 7, 2006). |
|
|
10.18(1) |
Letter Amendment dated May 17, 2006 among The Bank of Nova Scotia, Technitrol, Inc. and AMI Doduco, Inc. (incorporated by reference to Exhibit 10.18(1) to our Form 8-K dated May 17, 2006). |
10.18 |
Silver Lease Agreement dated April 9, 1996 between Standard Chartered Bank Mocatta Bullion New York and Advanced Metallurgy, Inc. and Guarantee dated April 29, 1996 by Technitrol, Inc. (incorporated by reference to Exhibit 10.18 to our Form 10-Q for the three months ended October 1, 2004). |
|
|
10.18(1) |
Letter Agreement dated April 9, 1996 between Standard Chartered Bank Mocatta Bullion New York and Advanced Metallurgy, Inc. (incorporated by reference to Exhibit 10.18(1) to our Form 10-Q for the three months ended October 1, 2004). |
|
|
10.19 |
Consignment Agreement dated September 24, 2005 between Mitsui & Co. Precious Metals Inc., and AMI Doduco, Inc. (incorporated by reference to Exhibit 10.19 to our Form 8-K dated March 28, 2006). |
|
|
10.20 |
Unlimited Guaranty dated December 16, 1996 by Technitrol, Inc. in favor of Rhode Island Hospital Trust National Bank (incorporated by reference to Exhibit 10.20 to our Form 10-Q for the nine months ended October 1, 2004). |
|
|
10.21 |
Corporate Guaranty dated November 1, 2004 by Technitrol, Inc. in favor of Mitsui & Co. Precious Metals, Inc. (incorporated by reference to Exhibit 10.21 to our Form 10-Q for the nine months ended October 1, 2004). |
|
|
10.23 |
Share Purchase Agreement dated August 8, 2005 among Pulse Electronics (Singapore) Pte. Ltd., as Purchaser, and Filtronic Plc and Filtronic Comtek Oy, as Sellers (incorporated by reference to Exhibit 10.1 to our Form 8-K dated August 11, 2005). |
|
|
10.24 |
Sale and Transfer Agreement dated November 28, 2005 among era GmbH & Co. KG, Pulse GmbH, CST Electronics Co., Ltd., and certain other parties named therein (incorporated by reference to Exhibit 10.1 to our Form 8-K dated December 2, 2005). |
|
|
10.25 |
CEO Annual and Long-Term Equity Incentive Process (incorporated by reference to Exhibit 10.25 to our Form 10-Q for the six months ended June 30, 2006). |
|
|
10.30 |
Schedule of Board of Director and Committee Fees (incorporated by reference to Exhibit 10.30 to our Form 10-K for the year ended December 31, 2004). |
|
|
31.1 |
Certification of Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
Certification of Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Signatures
Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TECHNITROL, INC. |
|
By |
/s/James M. Papada, III |
|
|
|
|
|
|
|
|
|
James M. Papada, III |
|
|
|
|
Chairman and Chief Executive Officer |
|
|
|
|
|
|
|
|
Date |
February 26, 2007 |
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated. |
|
By |
/s/Alan E. Barton |
|
By |
/s/Edward M. Mazze |
|
|
|
|
|
|
Alan E. Barton |
|
|
Edward M. Mazze |
|
Director |
|
|
Director |
|
|
|
|
|
Date |
February 26, 2007 |
|
Date |
February 26, 2007 |
|
|
|
|
|
By |
/s/John E. Burrows, Jr. |
|
By |
/s/ C. Mark Melliar-Smith |
|
|
|
|
|
|
John E. Burrows, Jr. |
|
|
C. Mark Melliar-Smith |
|
Director |
|
|
Director |
|
|
|
|
|
Date |
February 26, 2007 |
|
Date |
February 26, 2007 |
|
|
|
|
|
By |
/s/Jeffrey A. Graves |
|
By |
/s/James M. Papada, III |
|
|
|
|
|
|
Jeffrey A. Graves |
|
|
James M. Papada, III |
|
Director |
|
|
Chairman and Chief Executive Officer |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
Date |
February 26, 2007 |
|
Date |
February 26, 2007 |
|
|
|
|
|
By |
/s/David H. Hofmann |
|
By |
/s/Drew A. Moyer |
|
|
|
|
|
|
David H. Hofmann |
|
|
Drew A. Moyer |
|
Director |
|
|
Senior Vice President |
|
|
|
|
and Chief Financial Officer |
Date |
February 26, 2007 |
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
Date |
February 26, 2007 |
|
|
|
|
|
|
|
|
By |
/s/Edward J. Prajzner |
|
|
|
|
|
|
|
|
|
Edward J. Prajzner |
|
|
|
|
Corporate Controller and |
|
|
|
|
Chief Accounting Officer |
|
|
|
|
(Principal Accounting Officer) |
|
|
|
|
|
|
|
|
Date |
February 26, 2007 |
|
|
|
|
|
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EX-10.13.(1)
4
d71020_ex10-131.htm
MATERIAL CONTRACTS
Exhibit 10.13(1)
The CORPORATEplan for RetirementSM
ADDENDUM
RE: Code Sections 401(k) and 401(m) 2004 Final Regulations, Roth 401(k)
|
Amendments for Fidelity Basic Plan Document No. 02 |
PREAMBLE
Adoption and Effective Date of Amendment. This amendment of the Plan is adopted to reflect the final regulations under Internal Revenue Code (Code) sections 401(k) and 401(m) and to reflect Code section 402A as added by section 617 of the Economic Growth and Tax Relief Reconciliation Act of 2001. This amendment is intended as good faith compliance with the requirements of Code sections 401(k), 401(m) and 402A and is to be construed in accordance with guidance issued thereunder. Except as otherwise provided in the numbered paragraphs below, this amendment shall be effective as determined pursuant to the rules in paragraphs A and B immediately below:
|
A. |
Except as otherwise provided in paragraph B below, this amendment shall be effective for plan years that begin on or after January 1, 2006. |
|
B. |
If the Plan is maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers in effect on the date described in paragraph A above, this amendment shall be effective beginning with the later of the first plan year beginning after the termination of the last such agreement or the first plan year described in paragraph A above. |
Supersession of Inconsistent Provisions. This amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment.
|
1. |
Section 5.03, Deferral Contributions, is hereby amended, effective January 1, 2006, by adding a new subsection (c) to the end thereof to provide as follows: |
|
(c) |
Roth Deferral Contributions. |
(A) This subsection (c) will apply to contributions beginning with the effective date specified in the Roth Deferral Contributions Addendum to the Adoption Agreement but in no event before the first day of the first taxable year beginning on or after January 1, 2006.
Page 1 of 7
(B) As of the effective date under subparagraph (A) hereof, the Plan will accept Roth Deferral Contributions made on behalf of Participants. A Participants Roth Deferral Contributions will be allocated to a separate account maintained for such contributions as described in paragraph (2) of this Section 5.03(c).
(C) Unless specifically stated otherwise, Roth Deferral Contributions will be treated as Deferral Contributions for all purposes under the Plan.
(A) Contributions and withdrawals of Roth Deferral Contributions will be credited and debited to the Roth Deferral Contributions sub-account maintained for each Participant within the Participants Account.
(B) The Plan will maintain a record of the amount of Roth Deferral Contributions in each such sub-account.
(C) Gains, losses, and other credits or charges must be separately allocated on a reasonable and consistent basis to each Participants Roth Deferral Contributions sub-account and the Participants other sub-accounts within the Participants Account under the Plan.
(D) No contributions other than Roth Deferral Contributions and properly attributable earnings will be credited to each Participants Roth Deferral Contributions sub-account.
(A) Notwithstanding anything to the contrary in Section 13.04, a direct rollover of a distribution from a Roth Deferral Contributions sub-account under the Plan will only be made to another Roth Deferral Contributions account under an applicable retirement plan described in Code section 402A(e)(1) or to a Roth IRA described in Code section 408A and only to the extent the rollover is permitted under the rules of Code section 402(c).
(B) Notwithstanding anything to the contrary in Section 5.06, and provided the Employer so elects in the Roth Deferral
Page 2 of 7
Contributions Addendum to the Adoption Agreement, the Plan will accept a rollover contribution to a Roth Deferral Contributions sub-account, but only if it is a direct rollover from another Roth Deferral Contributions account under an applicable retirement plan described in Code section 402A(e)(1) and only to the extent the rollover is permitted under the rules of Code section 402(c).
(C) The Plan will not provide for a direct rollover (including an automatic rollover) for distributions from a Participants Roth Deferral Contributions sub-account if the amounts of the distributions that are eligible rollover distributions are reasonably expected to total less than $200 during a year. In addition, any distribution from a Participants Roth Deferral Contributions sub-account is not taken into account in determining whether distributions from a Participants other sub-accounts are reasonably expected to total less than $200 during a year. However, eligible rollover distributions from a Participants Roth Deferral Contributions sub-account are taken into account in determining whether the total amount of the Participants account balances under the Plan
exceeds $1,000 for purposes of mandatory distributions from the Plan.
(D) The provisions of the Plan that allow a Participant to elect a direct rollover of only a portion of an eligible rollover distribution but only if the amount rolled over is at least $500 is applied by treating any amount distributed from the Participants Roth Deferral Contributions sub-account as a separate distribution from any amount distributed from the Participants other sub-accounts in the Plan, even if the amounts are distributed at the same time.
|
(4) |
Correction of Excess Contributions. In the case of a distribution of excess contributions to a Highly Compensated Employee, such excess contributions shall be deemed to be pre-tax Deferral Contributions to the extent such Highly Compensated Employee made pre-tax Deferral Contributions for the year, and any remainder shall be deemed to be Roth Deferral Contributions. |
|
(5) |
Roth Deferral Contributions Defined. A Roth Deferral Contribution is an elective deferral contribution that is: |
(A) Designated irrevocably by the participant at the time of the cash or deferred election as a Roth Deferral Contribution
Page 3 of 7
that is being made in lieu of all or a portion of the pre-tax elective deferrals the participant is otherwise eligible to make under the Plan; and
(B) Treated by the employer as includible in the participants income at the time the participant would have received that amount in cash if the participant had not made a cash or deferred election.
|
2. |
Section 5.07, Qualified Nonelective Employer Contributions, is hereby amended in its entirety to provide as follows: |
The Employer may, in its discretion, make a Qualified Nonelective Employer Contribution for the Plan Year in any amount necessary to satisfy or help to satisfy the ADP test, described in Section 6.03, and/or the ACP test, described in Section 6.06. Qualified Nonelective Employer contributions shall be allocated based on Participants testing compensation, as defined in Subsection 6.01(t), rather than Compensation, as defined in Subsection 2.01(j). Any Qualified Nonelective Employer Contribution shall be allocated only as provided in this Section 5.07 (notwithstanding anything to the contrary in Section 1.09 or in any other Plan provision).
Notwithstanding anything to the contrary in Section 1.09 or in any other Plan provision, Qualified Nonelective Employer Contributions shall be allocated to Participants who were Active Participants at any time during the Plan Year and are Non-Highly Compensated Employees pursuant to either (a) or (b) below.
|
(a) |
If the Employer has not elected Section 1.09(a)(1) in the Adoption Agreement, Qualified Nonelective Employer Contributions shall be allocated in the ratio which each such Participants testing compensation, as defined in Subsection 6.01(t), for the Plan Year bears to the total of all such Participants testing compensation for the Plan Year. |
|
(b) |
If the Employer has elected Section 1.09(a)(1) in the Adoption Agreement, Qualified Nonelective Employer Contributions shall be allocated as provided in such Section 1.09(a)(1), provided, however, that in no event shall any such allocation to an eligible Participant exceed 5% of the testing compensation of such Participant for the Plan Year, and, provided further that, notwithstanding the above, in the event the Employer elects to disaggregate the Plan pursuant to Treasury Regulation Section 1.401(k)-1(b)(4) and consistent with Code section 410(b)(4)(B), the Employer may choose to provide Qualified Nonelective Employer Contributions to only those otherwise |
Page 4 of 7
eligible Participants who are covered by the resulting component plan that covers the non-excludable Participants.
Subject to subsection (b) hereof, Active Participants shall not be required to satisfy any Hours of Service or employment requirement for the Plan Year in order to receive an allocation of Qualified Nonelective Employer Contributions.
Qualified Nonelective Employer Contributions shall be distributable only in accordance with the distribution provisions that are applicable to Deferral Contributions; provided, however, that a Participant shall not be permitted to take a hardship withdrawal of amounts credited to his Qualified Nonelective Employer Contributions Account after the later of December 31, 1988 or the last day of the Plan Year ending before July 1, 1989.
|
3. |
Section 6.09, Income or Loss on Distributable Contributions, is hereby amended in its entirety to provide as follows: |
The income or loss allocable to excess deferrals, excess contributions, and excess aggregate contributions shall be determined under the following method: The income or loss attributable to such distributable contributions shall be the sum of (i) the income or loss on such contributions for the determination year, determined under any reasonable method, plus (ii) the income or loss on such contributions for the gap period, determined under such reasonable method. Any reasonable method used to determine income or loss hereunder shall be used consistently for all Participants in determining the income or loss allocable to distributable contributions hereunder and shall be the same method that is used by the Plan in allocating income or loss to Participants Accounts. For purposes of this paragraph, the gap period
means the period between the end of the determination year and the date of distribution; provided, however, that income or loss for the gap period may be determined as of a date that is no more than seven days before the date of distribution.
|
4. |
Section 6.10, Deemed Satisfaction of ADP Test, is hereby amended in its entirety to provide as follows: |
Notwithstanding any other provision of this Article 6 to the contrary, for any Plan Year beginning on or after January 1, 1999, if the Employer has elected one of
the safe harbor contributions in Subsection 1.10(a)(3) or 1.11(a)(3) of the Adoption Agreement and complies with the notice requirements described herein for such Plan Year, the Plan shall be deemed to have satisfied the ADP test described in Section 6.03. The
Employer shall provide to each Active Participant during the Plan Year a comprehensive notice of the Active Participants rights and obligations
Page 5 of 7
under the Plan. Such notice shall be written in a manner calculated to be understood by the average Active Participant. The Employer shall provide the notice to each Active Participant within one of the following periods, whichever is applicable:
|
(a) |
if the employee is an Active Participant 90 days before the beginning of the Plan Year, within the period beginning 90 days and ending 30 days before the first day of the Plan Year; or |
|
(b) |
if the employee becomes an Active Participant after the date described in subsection (a) above, within the period beginning 90 days before and ending on the date he becomes an Active Participant; |
provided, however, that such notice shall not be required to be provided to an Active Participant earlier than is required under any guidance published by the Internal Revenue Service.
If an Employer that provides notice that the Plan may be amended to provide a safe harbor Nonelective Employer Contribution for the Plan Year does amend the Plan to provide such contribution, the Employer shall provide a supplemental notice to all Active Participants stating that a safe harbor Nonelective Employer Contribution in the specified amount shall be made for the Plan Year. Such supplemental notice shall be provided to Active Participants at least 30 days before the last day of the Plan Year.
Notwithstanding the foregoing, if the Employer has elected a more stringent eligibility requirement in Section 1.04 of the Adoption Agreement for such 401(k) safe harbor contributions than for Deferral Contributions, the Plan may be disaggregated pursuant to Treasury Regulation section 1.401(k)-3(h)(3), consistent with Code section 410(b)(4)(B), and deemed to have satisfied the ADP test only with respect to that portion of the Plan that satisfies Code section 401(k)(12). The remainder of the Plan shall be subjected to the ADP test described in Section 6.03.
If the Employer elected to provide safe harbor Matching Employer Contributions pursuant to Subsection 1.10(a)(3) of the Adoption Agreement
or to have deemed satisfaction of the ACP test with respect to Matching Employer Contributions pursuant to the Addendum Re Safe Harbor Nonelective Employer Contribution to the Adoption Agreement, then, notwithstanding any election the Employer might have made
pursuant to Subsection 1.10(d) of the Adoption Agreement (except for an election to apply paragraph (6) thereof), no continuing eligibility
Page 6 of 7
requirements shall apply to any Matching Employer Contributions provided under the Plan (but an election to apply paragraph (6) of Subsection 1.10(d) is unaffected).
In the event that the Plan provides for Catch-up Contributions and the Employer elects to make Safe Harbor Matching Employer Contributions pursuant to Section 1.10(a)(3), then, notwithstanding anything to the contrary herein, in the event that the Addendum Re Safe Harbor Matching Employer Contribution to the Adoption Agreement would otherwise require Matching Employer Contributions to be made with respect to Catch-up Contributions, then the Employer shall provide such Matching Employer Contributions with respect to Catch-up Contributions to the extent necessary to comply with such Matching Employer Contribution requirements.
|
5. |
Subsection (a) of Section 10.05, Hardship Withdrawals, is hereby amended by replacing paragraph (5) thereof and adding new paragraphs (6) and (7) as provided below: |
|
(5) |
payments for burial or funeral expenses for the Participants deceased parent, spouse, child, or dependent (as defined in Code section 152, and, for taxable years beginning on or after January 1, 2005, without regard to subsection (d)(1)(B) thereof); |
|
(6) |
expenses for the repair of damage to the Participants principal residence that would qualify for the casualty deduction under Code section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income); or |
|
(7) |
any other financial need determined to be immediate and heavy under rules and regulations issued by the Secretary of the Treasury or his delegate; provided, however, that any such financial need shall constitute an immediate and heavy need under this paragraph (7) no sooner than administratively practicable following the date such rule or regulation is issued. |
Page 7 of 7
EX-10.14.(1)
5
d71020_ex10-141.htm
MATERIAL CONTRACTS
Exhibit 10.14(1)
The CORPORATEplan for RetirementSM
ADDENDUM
RE: Code Sections 401(k) and 401(m) 2004 Final Regulations, Roth 401(k)
|
Amendments for Fidelity Basic Plan Document No. 02 |
PREAMBLE
Adoption and Effective Date of Amendment. This amendment of the Plan is adopted to reflect the final regulations under Internal Revenue Code (Code) sections 401(k) and 401(m) and to reflect Code section 402A as added by section 617 of the Economic Growth and Tax Relief Reconciliation Act of 2001. This amendment is intended as good faith compliance with the requirements of Code sections 401(k), 401(m) and 402A and is to be construed in accordance with guidance issued thereunder. Except as otherwise provided in the numbered paragraphs below, this amendment shall be effective as determined pursuant to the rules in paragraphs A and B immediately below:
|
A. |
Except as otherwise provided in paragraph B below, this amendment shall be effective for plan years that begin on or after January 1, 2006. |
|
B. |
If the Plan is maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers in effect on the date described in paragraph A above, this amendment shall be effective beginning with the later of the first plan year beginning after the termination of the last such agreement or the first plan year described in paragraph A above. |
Supersession of Inconsistent Provisions. This amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment.
|
1. |
Section 5.03, Deferral Contributions, is hereby amended, effective January 1, 2006, by adding a new subsection (c) to the end thereof to provide as follows: |
|
(c) |
Roth Deferral Contributions. |
(A) This subsection (c) will apply to contributions beginning with the effective date specified in the Roth Deferral Contributions Addendum to the Adoption Agreement but in no event before the first day of the first taxable year beginning on or after January 1, 2006.
Page 1 of 7
(B) As of the effective date under subparagraph (A) hereof, the Plan will accept Roth Deferral Contributions made on behalf of Participants. A Participants Roth Deferral Contributions will be allocated to a separate account maintained for such contributions as described in paragraph (2) of this Section 5.03(c).
(C) Unless specifically stated otherwise, Roth Deferral Contributions will be treated as Deferral Contributions for all purposes under the Plan.
(A) Contributions and withdrawals of Roth Deferral Contributions will be credited and debited to the Roth Deferral Contributions sub-account maintained for each Participant within the Participants Account.
(B) The Plan will maintain a record of the amount of Roth Deferral Contributions in each such sub-account.
(C) Gains, losses, and other credits or charges must be separately allocated on a reasonable and consistent basis to each Participants Roth Deferral Contributions sub-account and the Participants other sub-accounts within the Participants Account under the Plan.
(D) No contributions other than Roth Deferral Contributions and properly attributable earnings will be credited to each Participants Roth Deferral Contributions sub-account.
(A) Notwithstanding anything to the contrary in Section 13.04, a direct rollover of a distribution from a Roth Deferral Contributions sub-account under the Plan will only be made to another Roth Deferral Contributions account under an applicable retirement plan described in Code section 402A(e)(1) or to a Roth IRA described in Code section 408A and only to the extent the rollover is permitted under the rules of Code section 402(c).
(B) Notwithstanding anything to the contrary in Section 5.06, and provided the Employer so elects in the Roth Deferral
Page 2 of 7
Contributions Addendum to the Adoption Agreement, the Plan will accept a rollover contribution to a Roth Deferral Contributions sub-account, but only if it is a direct rollover from another Roth Deferral Contributions account under an applicable retirement plan described in Code section 402A(e)(1) and only to the extent the rollover is permitted under the rules of Code section 402(c).
(C) The Plan will not provide for a direct rollover (including an automatic rollover) for distributions from a Participants Roth Deferral Contributions sub-account if the amounts of the distributions that are eligible rollover distributions are reasonably expected to total less than $200 during a year. In addition, any distribution from a Participants Roth Deferral Contributions sub-account is not taken into account in determining whether distributions from a Participants other sub-accounts are reasonably expected to total less than $200 during a year. However, eligible rollover distributions from a Participants Roth Deferral Contributions sub-account are taken into account in determining whether the total amount of the Participants account balances under the Plan
exceeds $1,000 for purposes of mandatory distributions from the Plan.
(D) The provisions of the Plan that allow a Participant to elect a direct rollover of only a portion of an eligible rollover distribution but only if the amount rolled over is at least $500 is applied by treating any amount distributed from the Participants Roth Deferral Contributions sub-account as a separate distribution from any amount distributed from the Participants other sub-accounts in the Plan, even if the amounts are distributed at the same time.
|
(4) |
Correction of Excess Contributions. In the case of a distribution of excess contributions to a Highly Compensated Employee, such excess contributions shall be deemed to be pre-tax Deferral Contributions to the extent such Highly Compensated Employee made pre-tax Deferral Contributions for the year, and any remainder shall be deemed to be Roth Deferral Contributions. |
|
(5) |
Roth Deferral Contributions Defined. A Roth Deferral Contribution is an elective deferral contribution that is: |
(A) Designated irrevocably by the participant at the time of the cash or deferred election as a Roth Deferral Contribution
Page 3 of 7
that is being made in lieu of all or a portion of the pre-tax elective deferrals the participant is otherwise eligible to make under the Plan; and
(B) Treated by the employer as includible in the participants income at the time the participant would have received that amount in cash if the participant had not made a cash or deferred election.
|
2. |
Section 5.07, Qualified Nonelective Employer Contributions, is hereby amended in its entirety to provide as follows: |
The Employer may, in its discretion, make a Qualified Nonelective Employer Contribution for the Plan Year in any amount necessary to satisfy or help to satisfy the ADP test, described in Section 6.03, and/or the ACP test, described in Section 6.06. Qualified Nonelective Employer contributions shall be allocated based on Participants testing compensation, as defined in Subsection 6.01(t), rather than Compensation, as defined in Subsection 2.01(j). Any Qualified Nonelective Employer Contribution shall be allocated only as provided in this Section 5.07 (notwithstanding anything to the contrary in Section 1.09 or in any other Plan provision).
Notwithstanding anything to the contrary in Section 1.09 or in any other Plan provision, Qualified Nonelective Employer Contributions shall be allocated to Participants who were Active Participants at any time during the Plan Year and are Non-Highly Compensated Employees pursuant to either (a) or (b) below.
|
(a) |
If the Employer has not elected Section 1.09(a)(1) in the Adoption Agreement, Qualified Nonelective Employer Contributions shall be allocated in the ratio which each such Participants testing compensation, as defined in Subsection 6.01(t), for the Plan Year bears to the total of all such Participants testing compensation for the Plan Year. |
|
(b) |
If the Employer has elected Section 1.09(a)(1) in the Adoption Agreement, Qualified Nonelective Employer Contributions shall be allocated as provided in such Section 1.09(a)(1), provided, however, that in no event shall any such allocation to an eligible Participant exceed 5% of the testing compensation of such Participant for the Plan Year, and, provided further that, notwithstanding the above, in the event the Employer elects to disaggregate the Plan pursuant to Treasury Regulation Section 1.401(k)-1(b)(4) and consistent with Code section 410(b)(4)(B), the Employer may choose to provide Qualified Nonelective Employer Contributions to only those otherwise |
Page 4 of 7
eligible Participants who are covered by the resulting component plan that covers the non-excludable Participants.
Subject to subsection (b) hereof, Active Participants shall not be required to satisfy any Hours of Service or employment requirement for the Plan Year in order to receive an allocation of Qualified Nonelective Employer Contributions.
Qualified Nonelective Employer Contributions shall be distributable only in accordance with the distribution provisions that are applicable to Deferral Contributions; provided, however, that a Participant shall not be permitted to take a hardship withdrawal of amounts credited to his Qualified Nonelective Employer Contributions Account after the later of December 31, 1988 or the last day of the Plan Year ending before July 1, 1989.
|
3. |
Section 6.09, Income or Loss on Distributable Contributions, is hereby amended in its entirety to provide as follows: |
The income or loss allocable to excess deferrals, excess contributions, and excess aggregate contributions shall be determined under the following method: The income or loss attributable to such distributable contributions shall be the sum of (i) the income or loss on such contributions for the determination year, determined under any reasonable method, plus (ii) the income or loss on such contributions for the gap period, determined under such reasonable method. Any reasonable method used to determine income or loss hereunder shall be used consistently for all Participants in determining the income or loss allocable to distributable contributions hereunder and shall be the same method that is used by the Plan in allocating income or loss to Participants Accounts. For purposes of this paragraph, the gap period
means the period between the end of the determination year and the date of distribution; provided, however, that income or loss for the gap period may be determined as of a date that is no more than seven days before the date of distribution.
|
4. |
Section 6.10, Deemed Satisfaction of ADP Test, is hereby amended in its entirety to provide as follows: |
Notwithstanding any other provision of this Article 6 to the contrary, for any Plan Year beginning on or after January 1, 1999, if the Employer has elected one of
the safe harbor contributions in Subsection 1.10(a)(3) or 1.11(a)(3) of the Adoption Agreement and complies with the notice requirements described herein for such Plan Year, the Plan shall be deemed to have satisfied the ADP test described in Section 6.03. The
Employer shall provide to each Active Participant during the Plan Year a comprehensive notice of the Active Participants rights and obligations
Page 5 of 7
under the Plan. Such notice shall be written in a manner calculated to be understood by the average Active Participant. The Employer shall provide the notice to each Active Participant within one of the following periods, whichever is applicable:
|
(a) |
if the employee is an Active Participant 90 days before the beginning of the Plan Year, within the period beginning 90 days and ending 30 days before the first day of the Plan Year; or |
|
(b) |
if the employee becomes an Active Participant after the date described in subsection (a) above, within the period beginning 90 days before and ending on the date he becomes an Active Participant; |
provided, however, that such notice shall not be required to be provided to an Active Participant earlier than is required under any guidance published by the Internal Revenue Service.
If an Employer that provides notice that the Plan may be amended to provide a safe harbor Nonelective Employer Contribution for the Plan Year does amend the Plan to provide such contribution, the Employer shall provide a supplemental notice to all Active Participants stating that a safe harbor Nonelective Employer Contribution in the specified amount shall be made for the Plan Year. Such supplemental notice shall be provided to Active Participants at least 30 days before the last day of the Plan Year.
Notwithstanding the foregoing, if the Employer has elected a more stringent eligibility requirement in Section 1.04 of the Adoption Agreement for such 401(k) safe harbor contributions than for Deferral Contributions, the Plan may be disaggregated pursuant to Treasury Regulation section 1.401(k)-3(h)(3), consistent with Code section 410(b)(4)(B), and deemed to have satisfied the ADP test only with respect to that portion of the Plan that satisfies Code section 401(k)(12). The remainder of the Plan shall be subjected to the ADP test described in Section 6.03.
If the Employer elected to provide safe harbor Matching Employer Contributions pursuant to Subsection 1.10(a)(3) of the Adoption Agreement
or to have deemed satisfaction of the ACP test with respect to Matching Employer Contributions pursuant to the Addendum Re Safe Harbor Nonelective Employer Contribution to the Adoption Agreement, then, notwithstanding any election the Employer might have made
pursuant to Subsection 1.10(d) of the Adoption Agreement (except for an election to apply paragraph (6) thereof), no continuing eligibility
Page 6 of 7
requirements shall apply to any Matching Employer Contributions provided under the Plan (but an election to apply paragraph (6) of Subsection 1.10(d) is unaffected).
In the event that the Plan provides for Catch-up Contributions and the Employer elects to make Safe Harbor Matching Employer Contributions pursuant to Section 1.10(a)(3), then, notwithstanding anything to the contrary herein, in the event that the Addendum Re Safe Harbor Matching Employer Contribution to the Adoption Agreement would otherwise require Matching Employer Contributions to be made with respect to Catch-up Contributions, then the Employer shall provide such Matching Employer Contributions with respect to Catch-up Contributions to the extent necessary to comply with such Matching Employer Contribution requirements.
|
5. |
Subsection (a) of Section 10.05, Hardship Withdrawals, is hereby amended by replacing paragraph (5) thereof and adding new paragraphs (6) and (7) as provided below: |
|
(5) |
payments for burial or funeral expenses for the Participants deceased parent, spouse, child, or dependent (as defined in Code section 152, and, for taxable years beginning on or after January 1, 2005, without regard to subsection (d)(1)(B) thereof); |
|
(6) |
expenses for the repair of damage to the Participants principal residence that would qualify for the casualty deduction under Code section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income); or |
|
(7) |
any other financial need determined to be immediate and heavy under rules and regulations issued by the Secretary of the Treasury or his delegate; provided, however, that any such financial need shall constitute an immediate and heavy need under this paragraph (7) no sooner than administratively practicable following the date such rule or regulation is issued. |
Page 7 of 7
EX-21
6
d71020_ex21.htm
SUBSIDIARIES OF THE REGISTRANT
|
Exhibit 21 Subsidiaries of the Registrant
Technitrol, Inc., which has no parent, has the following subsidiaries: |
|
Name |
|
Incorporation |
|
Percent Owned |
|
|
|
|
|
AMI Doduco Components B.V. (Netherlands) |
|
Netherlands |
|
100% |
AMI Doduco España, S. L. |
|
Spain |
|
100% |
AMI Doduco (France) S. A. S. |
|
France |
|
100% |
AMI Doduco GmbH |
|
Germany |
|
100% |
AMI Doduco Holding GmbH |
|
Germany |
|
100% |
AMI Doduco Hungary Kft. |
|
Hungary |
|
100% |
AMI Doduco, Inc. |
|
Pennsylvania |
|
100% |
AMI Doduco Investors (DE), LLC |
|
Delaware |
|
100% |
AMI Doduco Italia Holdings S.r.l. |
|
Italy |
|
100% |
AMI Doduco Italia S.r.l. |
|
Italy |
|
100% |
AMI Doduco (Mexico), S. de R. L. de C. V. |
|
Mexico |
|
100% |
AMI Doduco (NC), Inc. |
|
Delaware |
|
100% |
AMI Doduco Nederland B.V. |
|
Netherlands |
|
100% |
AMI Doduco (PR), LLC |
|
Delaware |
|
100% |
AMI Doduco Singapore Holding Pte. Ltd. |
|
Singapore |
|
100% |
AMI Doduco (Tianjin) Electrical Contacts Manufacturing Co., Ltd. |
|
Peoples Republic of China |
|
100% |
AMI Doduco (UK) Ltd. |
|
United Kingdom |
|
100% |
Boothbay Pte. Ltd. |
|
Singapore |
|
100% |
Changshu Full Rise Electronic Co., Ltd. |
|
Peoples Republic of China |
|
71% |
CST Electronics Co., Ltd. |
|
Hong Kong |
|
100% |
Dongguan Pulse Electronics Co., Ltd. |
|
Peoples Republic of China |
|
100% |
Electro Componentes Mexicana S. A. de C. V. |
|
Mexico |
|
100% |
Electro Corporacion Mexicana S. A. de C. V. |
|
Mexico |
|
100% |
Eraplast S.A.R.L. (Tunisia) |
|
West Samoa |
|
71% |
Excelsus Technologies Limited |
|
Hong Kong |
|
100% |
Full Rich (Ning Bo) Electronic co., Ltd. |
|
Peoples Republic of China |
|
71% |
Full Rise Electronic Co., Ltd. (Fuliwang) |
|
Peoples Republic of China |
|
71% |
Full Rise Electronic Co., Ltd. (Hong Kong) |
|
Hong Kong |
|
71% |
Full Rise Electronic Co., Ltd. (Taiwan) |
|
Taiwan |
|
71% |
Full Rise Electronics Pte. Ltd. (Singapore) |
|
Delaware |
|
100% |
Pulse Finland Oy |
|
Finland |
|
100% |
LK Products Hungary Industrial Ltd. |
|
Hungary |
|
71% |
Maxtop (Ning Bo) Telecom Electronic Co., Ltd. |
|
Peoples Republic of China |
|
71% |
MCS Holdings, Inc. |
|
Delaware |
|
100% |
Mianyang Pulse Electronics Co., Ltd. |
|
Peoples Republic of China |
|
100% |
Pulse Canada Ltd. |
|
Canada |
|
100% |
Pulse Components GmbH (Germany) |
|
Germany |
|
100% |
Pulse Components Ltd. (Hong Kong) |
|
Hong Kong |
|
100% |
Pulse Electronics (Europe) Ltd. |
|
United Kingdom |
|
100% |
Pulse Electronics Ltd. (Hong Kong) |
|
Hong Kong |
|
100% |
Pulse Electronics (Shenzhen) Co., Ltd. |
|
Peoples Republic of China |
|
100% |
Pulse Electronics (Singapore) Pte. Ltd. |
|
Singapore |
|
100% |
Pulse Elektronik Sanay Ticaret L.S. |
|
Turkey |
|
100% |
Pulse Engineering, Inc. |
|
Delaware |
|
100% |
Pulse GmbH (Germany) |
|
Germany |
|
100% |
Pulse Italy S.r.L. |
|
Italy |
|
100% |
Pulse LK |
|
United Kingdom |
|
100% |
Pulse PowerTrain GmbH (Germany) |
|
Germany |
|
100% |
Pulse S.A.S. |
|
France |
|
100% |
Pulse (Suzhou) Wireless Products Co., Ltd. |
|
Peoples Republic of China |
|
100% |
Smart Jumbo Industries Limited |
|
Hong Kong |
|
100% |
Technitrol Delaware, Inc. |
|
Delaware |
|
100% |
Technitrol Singapore Holdings Pte. Ltd. |
|
Singapore |
|
100% |
TNL Singapore Components Holdings Pte. Ltd. |
|
Singapore |
|
100% |
Tunera S.A.R.L. |
|
Tunisia |
|
100% |
|
|
|
|
|
EX-23
7
d71020_ex23.htm
CONSENT OF KPMG LLP
|
Exhibit 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Technitrol, Inc.:
We consent to the incorporation by reference in the registration statement (Nos. 033-35334, 033-63203,
333-55751, 333-94073, 333-64068, 333-64060, and 333-130013) on Form S-8 of Technitrol, Inc. of our
reports dated February 26, 2007, with respect to the consolidated balance sheets of Technitrol, Inc.
and subsidiaries as of December 29, 2006 and December 30, 2005, and the related consolidated statements
of operations, cash flows, and changes in shareholders equity for each of the years in the
three-year period ended December 29, 2006, and the related financial statement schedule, managements
assessment of the effectiveness of internal control over financial reporting as of December 29, 2006
and the effectiveness of internal control over financial reporting as of December 29, 2006, which
reports appear in the December 29, 2006 annual report on Form 10-K of Technitrol, Inc. Our report
refers to the Companys adoption of Statement of Financial Accounting Standard No. 123(R), Share-Based Payment, Statement of Financial Accounting Standard No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, and Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 26, 2007 |
EX-31.1
8
d71020_ex31-1.htm
RULE 13A-14(A)/15D-14(A) CERTIFICATIONS
|
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
pursuant to Rule 13a-14(a)/15d-14(a)
I, James M. Papada, III, certify that: |
|
|
1. |
I have reviewed this Annual Report on Form 10-K of Technitrol; |
|
|
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this Annual
Report, fairly present in all material respects the financial condition, results of operations and
cash flows of registrant as of, and for, the periods presented in this report; |
|
|
|
|
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have: |
|
|
|
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared; and |
|
|
|
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; and |
|
|
|
|
c) |
evaluated the effectiveness of the registrants disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
d) |
disclosed in this report any change in the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrants internal control over financial
reporting. |
|
|
|
|
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent function): |
|
|
|
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrants ability
to record, process, summarize and report financial information; and |
|
|
|
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrants internal control over financial reporting. |
|
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Date: |
February 26, 2007 |
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/s/ James M. Papada, III |
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James M. Papada, III
Chairman and Chief Executive Officer
(Principal Executive Officer) |
EX-31.2
9
d71020_ex31-2.htm
RULE 13A-14(A)/15D-14(A) CERTIFICATIONS
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Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
pursuant to Rule 13a-14(a)/15d-14(a)
I, Drew A. Moyer, certify that: |
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1. |
I have reviewed this Annual Report on Form 10-K of Technitrol; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this Annual
Report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have: |
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a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared; and |
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b) |
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; and |
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c) |
evaluated the effectiveness of the registrants disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and |
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d) |
disclosed in this report any change in the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrants internal control over financial reporting. |
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5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent function): |
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a) |
all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrants ability
to record, process, summarize and report financial information; and |
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b) |
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrants internal control over financial reporting. |
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Date: |
February 26, 2007 |
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/s/ Drew A. Moyer |
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Drew A. Moyer
Senior Vice President and Chief Financial Officer
(Principal Financial Officer) |
EX-32.1
10
d71020_ex32-1.htm
SECTION 1350 CERTIFICATIONS
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Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
I, James M. Papada, III, Chief Executive Officer of Technitrol, Inc., certify, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that: |
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(1) |
the Annual Report on Form 10-K for the fiscal year ended December 29, 2006 (the Periodic Report),
which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
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(2) |
information contained in the Periodic Report fairly presents, in all material respects, the financial
condition and results of operations of Technitrol, Inc. |
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Dated: |
February 26, 2007 |
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/s/ James M. Papada, III |
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James M. Papada, III |
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A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002
has been provided to Technitrol, Inc., and will be retained by Technitrol, Inc., and furnished
to
the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities
and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant
under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after
the date of the Form 10-K), irrespective of any general incorporation language contained in such
filing |
EX-32.2
11
d71020_ex32-2.htm
SECTION 1350 CERTIFICATIONS
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Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
I, Drew A. Moyer, Chief Financial Officer of Technitrol, Inc., certify, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that: |
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(1) |
the Annual Report on Form 10-K for the fiscal year ended December 29, 2006 (the Periodic Report),
which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
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(2) |
information contained in the Periodic Report fairly presents, in all material respects, the financial
condition and results of operations of Technitrol, Inc. |
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Dated: |
February 26, 2007 |
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/s/ Drew A. Moyer |
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Drew A. Moyer |
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A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002
has been provided to Technitrol, Inc., and will be retained by Technitrol, Inc., and furnished
to
the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities
and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant
under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after
the date of the Form 10-K), irrespective of any general incorporation language contained in such
filing. |
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