SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File No. 1-6620
INSTRUMENT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-1893410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 JERICHO QUADRANGLE, JERICHO, NEW YORK 11753
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 938-5544
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF CLASS WHICH REGISTERED
-------------- ------------------------
COMMON STOCK, $.25 PAR VALUE NEW YORK STOCK EXCHANGE
SECOND PREFERRED STOCK, SERIES I
$.25 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 such
filing requirements for the past 90 days. Yes X No
--- ---
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 registrant's 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 ].
State the aggregate market value of the voting stock held
by non-affiliates of the registrant. (The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within 60 days prior
to the date of filing.) As of November 15, 1994 -- approximately $263,000,000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date (applicable only to
corporate registrants). As of November 15, 1994 -- 33,738,036.
Documents incorporated by reference: Part III - Registrant's definitive
proxy statement to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934.
PART I
ITEM ONE - BUSINESS
General
Instrument Systems Corporation ("ISC" or "the Company") is a diversified
manufacturer with operations in three business segments: Home and Commercial
Products, Specialty Plastic Films and Electronic Information and Communication
Systems.
Home and Commercial Products
Management believes that its wholly-owned subsidiary, Clopay, is among the
largest manufacturers of residential garage doors in the United States. Clopay
sells a broad line of steel and wood garage doors for residential and commercial
use which are manufactured in stock sizes and styles as well as special order
to customer specifications.
Clopay's strategy is to produce a broad line of high quality garage doors
and other building products for distribution throughout North America to retail,
professional installer and wholesale channels. Clopay has focused on increasing
its market share by introducing new products, expanding its distribution, sales
and marketing programs and through strategic acquisitions.
Clopay sells residential garage doors to a large number of retailers
throughout North America, including home centers and building material
cooperative buying groups. Significant customers include The Home Depot Inc.,
Menards, Inc., Lowe's Companies, Inc., Payless Cashways, Inc., Builders Square,
Inc., Hechinger Company, Home Base, Wickes Lumber Company, Wolohan Lumber Co.,
84 Lumber and Grossman's Inc. Residential and commercial garage doors and
related products for professional installation are sold directly to a national
network of installation specialists.
Clopay distributes garage doors directly from its manufacturing facilities
and through its network of 32 company-owned distribution centers throughout the
United States and in Canada. Under Clopay's "furnish and install" program,
consumers purchase garage doors through local retailers. Clopay distribution
centers manage the installation through authorized installing dealers.
Clopay continues to make substantial capital investments in its
manufacturing facilities and believes that its automated continuous production
plants enable it to produce garage doors cost effectively. Wood garage doors
and passage doors are produced from kiln dried lumber and are constructed for
ease of operation and durability. Steel garage doors, including insulated
doors, are fabricated from pre-painted, galvanized steel, specially selected for
rust resistance and low maintenance. The lumber and steel used in the
manufacturing operations are generally available from a variety of sources. All
products are designed for safe operation and easy specification by architects,
contractors and facilities planners.
The garage door market is characterized by several large national
manufacturers including Clopay and many smaller regional and local
manufacturers. Clopay believes that it competes favorably on the basis of
price, diversity of product line, quality and merchandising capability.
Clopay also operates a service company that installs and services garage
doors and openers and prefabricated fireplaces.
The Company also manufactures and sells a broad line of specialty hardware
primarily for the food service industry under the name "Standard-Keil" and
components for beverage dispensing equipment under the name "Tap-Rite."
Specialty hardware products include commercial refrigeration fittings, locks,
hinges and lighting components for coolers, walk-in refrigeration
equipment, environmental control units and filters used to contain grease. The
beverage dispensing equipment includes carbon dioxide regulators, beer faucets,
picnic pumps and tavern taps.
The Company also manufactures and sells synthetic batting. Batting is
material used in layers or sheeting for lining, as a furniture filling, for
packaging and as filters.
Specialty Plastic Films
Clopay is a leading manufacturer of customized plastic film and laminates
made from plastic resin and non-woven fabrics for use in consumer and health
care products. Clopay's strategy is to offer technologically advanced products
for use in niche markets to major consumer and health care product companies.
Clopay believes that its research and development activities and capital
investment in related equipment enable it to efficiently manufacture products
in large volume and meet changing consumer needs. These factors, together with
its technical expertise, allow Clopay to compete favorably in its markets.
Clopay sells its products primarily throughout the United States with sales also
in Canada, Latin America and the Pacific Rim.
Clopay manufactures thin gauge embossed barrier films and coated laminates
of plastic film and non-woven fabrics to customer specifications for sale to
consumer product and other companies. These products are used primarily as the
backsheet barrier and the leg cuff in disposable diapers as well as the moisture
barrier in adult incontinent products and sanitary napkins. These products are
differentiated by strength, barrier and other properties. A substantial
portion of the specialty plastic film sales over the last five years have been
to The Procter & Gamble Company. The loss of this customer would have a
material adverse effect on the Company's business.
In May 1994, this customer informed the Company of its intention to make
a design change which will substantially reduce and could eliminate the thin
laminate program. The change is based upon the lower cost of an alternative
material. During fiscal 1994, sales of the thin laminate were approximately $28
million. The loss of the thin laminate program will adversely impact earnings,
subject to the ability of the Company to replace the business, expand other
areas of the specialty plastic films business and reduce operating costs.
The Company has recently been approved as a supplier of other moisture
barrier films to this customer and expects to sell approximately $10 to $15
million per year of such films. The Company has a number of ongoing development
projects with this and other customers and has directed its efforts to find
alternative business for the utilization of the plastic films segment's
production capacity.
Clopay also manufactures plastic films and laminates for a wide variety of
disposable health care products including surgical drapes, patient care
underpads and medical garments. These plastic products are also sold for use
in garments worn by workers in hazardous industrial environments.
Clopay manufactures these products on high speed equipment to meet
stringent tolerances. The manufacturing process consists of melting a mixture
of plastic resins (primarily polyolefins) and additives, and forcing this
mixture through a computer controlled die and rollers to produce embossed films.
In addition, the process can involve extruding the melted plastic film directly
onto a non-woven fabric to form a laminate. Certain products involve further
processes such as a secondary lamination of the film to a non-woven material.
Through statistical process control methods, Clopay personnel monitor and
control the entire production process. The plastic resins used in Clopay's
products are commodities generally available from several sources.
Clopay is engaged in several joint efforts with the research and
development departments of its major specialty plastic film customers. Clopay
employs chemists, scientists and engineers at a technical center to study
polymers and manufacturing processes that will assist in the development of its
specialty plastic film products. Clopay's research and development efforts have
resulted in inventions covering embossing patterns, improved processing methods
and other proprietary technology. Clopay's research and development costs for
this business amounted to approximately $1,600,000, $1,600,000 and $1,700,000
in 1992, 1993 and 1994, respectively.
Electronic Information and Communication Systems
The Company's wholly-owned subsidiary, Telephonics, founded in 1933 and
acquired by the Company in 1962, is an electronics systems company specializing
in advanced information and communications systems for government, aerospace,
civil, industrial and commercial markets. In recent years, Telephonics has
expanded its customer base with increasing emphasis in non-military markets.
These efforts have resulted in a series of new contract awards in transit and
wireless communications as well as international air traffic control projects.
Telephonics designs, manufactures and logistically supports advanced
military communications systems, avionics for commercial airlines, transit
communication systems, wireless products, command and control systems, strategic
communications systems, VLSI/LSI circuits, microwave components, test
instrumentation, microwave landing systems, maritime surveillance radars and air
traffic control systems. A substantial portion of Telephonics' sales
(approximately 66% for 1994) were to agencies of the U.S. Government or to prime
contractors or subcontractors on government, military or aerospace programs.
Telephonics' funded backlog at September 30, 1994 was approximately $125 million
as compared to $112 million at September 30, 1993. Approximately 60% of the
September 30, 1994 backlog is expected to be shipped within twelve months.
Telephonics participates in approximately 50 government and aerospace
programs. Approximately 60% of Telephonics' sales for 1994 were attributable
to upgrades, enhancements and follow-on options to existing long-term products
and programs.
Some of the major programs under which Telephonics participates include the
following:
Description of
Program Customer Product Purpose
- - -------------- -------- ------- -------
C-17A (Air Force Cargo McDonnell Integrated Radio Centralized digitally
Transport) Douglas Management System controlled audio
distribution system
Wireless Intercomm System Wireless communication
system
Transponder Test Unit On-board test
equipment
LAMPS MARK III Loral Multi-Mode Radar Upgraded avionics for
(Antisubmarine Warfare (MMR) the LAMPS MARK III
Helicopter) Intercommunication Helicopter with
and Radio Management maritime surveillance
System radar with identifi-
Identification Friend cation friend/or foe
or Foe (IFF) capability and inter-
communication and
radio management
systems
Joint-STARS (Airborne Northrop- Distributed Digital Manages all inter-
Surveillance System) Grumman Intercommunications and communication and
Corporation Radio Control System radio transmissions
Starcom (Inter- U.S. Army Communications System Provides all inter-
communication System Control Unit communications on
for Aircraft) aircraft
AATC (Amphibious U.S. Navy Amphibious Air Traffic Processing and display
Assault Ships) Control equipment used for air
traffic control
MTRACS (Caribbean U.S. Navy Command, Control and Used for Caribbean air
Operations Center) Communications System surveillance
SEPTA ABB Traction Communications, Wayside Car-borne
Video Surveillance communications for rail
Systems cars
Zhuhai Guangdong Air Traffic Control System Manage Air Traffic at
Machinex Zhuhai, China Airport
Corporation
Telephonics also designs and produces custom large-scale integrated
circuits, which replace conventional circuits and components with a single
microchip. Telephonics provides microchips to manufacturers of complex control
circuitry for airborne communication systems, telecommunications signal
processing equipment, security systems, home appliances, automated hand tools,
and for use in automobiles. Telephonics also provides specialized design
services which supplement customers' in-house capabilities. Telephonics also
produces a wide variety of microwave components and test instruments.
Headsets, microphones, earphones and cables manufactured by Telephonics are
used in military and commercial aircraft and ground vehicles, especially in high
noise environments.
Telephonics' commercial products include multiplex in-flight passenger
entertainment and service systems for wide-bodied aircraft which permit various
audio channels to be transmitted simultaneously over a single line and
distributed as separate channels to each passenger. Telephonics is under
contract with McDonnell Douglas to produce passenger and cabin address intercom
systems for the MD-80 aircraft. Under contracts with Morrison Knudson, ABB
Traction and other rail suppliers, Telephonics also produces communication
equipment which provides interior communications among commercial train cars.
Government programs in which Telephonics is involved frequently provide for
purchases under a series of independently priced contracts, each calling for
delivery of a lot, consisting of a portion of the units in the overall program.
Each contract is treated separately and there is no requirement that upon
delivery of the lot which is the subject of one contract, the government must
contract to purchase, or the supplier must contract to sell, additional lots.
Telephonics accounts for its long-term contracts using the
percentage-of-completion method. Under this method, the Company recognizes
revenues and gross profit under a contract based upon the costs incurred as a
percentage of the total estimated cost of fulfilling the contract. A typical
lot takes approximately one to three years to fulfill.
Most of Telephonics' contracts are fixed price, which means that
Telephonics generally bears the risk of cost overruns. In a fixed price
contract, progress payments are received during performance as stages are
reached for which fixed payments are established in the contract.
In accordance with Department of Defense and NASA procedures, all contracts
involving government programs permit the government to terminate the contract
at any time, at its convenience, without cause. In the event of such
termination, Telephonics is entitled to reimbursement for its costs and to
receive a proportionate share of its profits, if any, on the work performed
prior to termination.
Telephonics' staff of approximately 250 engineers and marketing personnel,
many of whom have technical backgrounds, advise government and commercial
planning and design personnel in an attempt to include Telephonics' products in
their programs.
Telephonics competes on the basis of technology, design, price and
performance. The products sold by Telephonics utilize technologies which are
constantly changing. Telephonics' expertise in these technologies enables it
to compete with several major manufacturers of electronic information and
communications systems which have greater financial resources than Telephonics.
Telephonics also competes with several smaller manufacturers of similar
products.
A major part of Telephonics' product development is performed under
government contracts under which such costs are generally recoverable. Research
and development costs not recoverable under contractual arrangements are charged
to expense as incurred. These costs were approximately $2,900,000, $1,600,000
and $1,400,000 for 1992, 1993 and 1994, respectively.
Employees
The Company has approximately 2,900 employees located throughout the United
States and in Canada at its various plants, warehouses and offices.
Approximately 400 of its employees are covered by collective bargaining
agreements, primarily with affiliates of the AFL-CIO. The Company believes its
relationships with employees are satisfactory.
Officers of the Registrant
Served as Positions and
Name Age Officer Since Offices
---- --- ------------- -------------
Harvey R. Blau 59 1983 Chairman of the Board
Robert Balemian 55 1976 President
Patrick L. Alesia 46 1979 Vice President and Treasurer
Susan E. Rowland 36 1983 Secretary
ITEM TWO - PROPERTIES
The Company occupies approximately 2,100,000 square feet of general office,
factory and warehouse space and showrooms throughout the United States and in
Canada. The following table sets forth certain information as to each of the
Company's major facilities:
Approximate Owned
Square or
Location Business Segment Primary Use Footage Leased
-------- ---------------- ----------- ----------- ------
Jericho, NY Corporate Headquarters Office 11,000 Leased
Farmingdale, NY Electronic Information Manufacturing 167,000 Owned
and Communication
Systems
Huntington, NY Electronic Information Manufacturing 114,000 Owned
(2 facilities) and Communication
Systems
Huntington, NY Electronic Information Manufacturing 41,000 Leased
and Communication
Systems
Carson, CA Home and Commercial Manufacturing 125,000 Owned
Products
Allenwood, NJ Home and Commercial Manufacturing 144,000 Owned
Products
Cincinnati, OH Home and Commercial Office 34,000 Leased
Products
Specialty Plastic
Films
Cincinnati, OH Specialty Plastic Research and 33,000 Leased
Films Development
Russia, OH Home and Commercial Manufacturing 274,000 Leased
Products
Baldwin, WI Home and Commercial Manufacturing 198,000 Leased
Products
Shawano, WI Home and Commercial Manufacturing 59,000 Leased
Products
Augusta, KY Specialty Plastic Manufacturing 143,000 Owned
Films
Nashville, TN Specialty Plastic Manufacturing 86,000 Leased
Films
Fresno, CA Specialty Plastic Manufacturing 37,000 Leased
Films
The Company has aggregate minimum annual rental commitments under real
estate leases of approximately $4,900,000. The majority of the leases have
escalation clauses related to increases in real property taxes on the leased
property and some for cost of living adjustments. Certain of the leases have
renewal options. The Company also leases space for the home and commercial
products segment's distribution centers in numerous facilities throughout the
United States which aggregate approximately 500,000 square feet. All plants and
equipment of the Company are believed to be in adequate condition and contain
sufficient space for current needs.
ITEM THREE - LEGAL PROCEEDINGS
A. Warwick Administrative Group, et al. v. Avon Products, et al. By way
of background, in February 1989, Lightron Corporation ("Lightron"), a wholly-
owned subsidiary of the Company, initially received notification from the EPA
that it was being named as one of several potentially responsible parties who
could be liable for cleanup and natural resource damages relating to a landfill
located in the Town of Warwick, Orange County, New York (the "Site").
Subsequently, the EPA conducted a remedial investigation and feasibility study
at the Site to determine the extent of the contamination and the various
alternative measures which are appropriate for remediation. On June 27, 1991, a
Record of Decision was signed setting forth the selected course of remediation
for the Site. Thereafter, pursuant to an Administrative Order issued by the EPA
which directed them to do so, the potentially responsible parties named in the
Order (the "Warwick Group") agreed to undertake to perform a second operable
unit Remediation Investigation and Feasibility Study.
In January 1993, the Warwick Group instituted the within action in the
United States District Court for the Southern District of New York against
Lightron and several other potentially responsible parties. According to their
complaint, the plaintiffs are seeking, inter alia, a declaratory judgment
decreeing that Lightron and the other defendants are jointly and severally
responsible under CERCLA to contribute their share of the actual response costs
already incurred and the future response costs to be incurred by the plaintiffs
in connection with the remediation of the Site.
Consistent with its contention that it did not dump or have delivered or
carted to the Site for disposal any hazardous or toxic wastes, Lightron has
served and filed an answer to the amended pleadings in which it generally denies
the plaintiffs' allegations and asserted several affirmative defenses to
liability, as well as counterclaims against the plaintiffs. Lightron also has
entered into a Stipulation with the other defendants regarding the implicit
assertion of mutual cross-claims among the several defendants.
B. Department of Environmental Conservation with Lightron Corporation
(Peekskill). Lightron once conducted operations at a location in Peekskill in
the Town of Cortlandt, New York owned by ISC Properties, Inc., a wholly-owned
subsidiary of the Company (the "Peekskill Site"). ISC Properties, Inc. sold the
Peekskill Site in November 1982.
Subsequently, ISC was advised by the New York State Department of
Environmental Conservation ("DEC") that random sampling at the Peekskill Site
and in a creek near the Peekskill Site indicated concentrations of solvents and
other chemicals common to Lightron's prior plating operations. Based upon these
findings, ISC Properties, Inc. is involved in the negotiation of a consent order
which the DEC will provide for the performance of a field investigation and
feasibility study at the Peekskill Site.
C. Linke Enterprises of Oregon, Inc. v. Champion Laboratories, Inc. and
Instrument Systems Corporation. In September 1990, a private cost recovery
action under federal and state environmental statutes was commenced in the
United States District Court of the District of Oregon. Plaintiff sought to
recover from the Company response costs in an amount exceeding $250,000 which
the plaintiff allegedly had expended to investigate and remediate an existing
environmental problem at the Site. The Site was previously leased by one of the
Company's former subsidiaries, Sun Battery, Inc., for the period from 1966 to
1971. According to the terms of the settlement agreement which resolved the
action, the Company was obligated to contribute to the plaintiff's remediation
costs the sum of $97,992.87. Champion Laboratories, Inc. also was required to
make a contribution to the plaintiff's remediation costs in the amount of
$49,011.13. In consideration of these contributions, both the Company and
Champion Laboratories, Inc. have been indemnified by the plaintiff against any
further liability with regard to the environmental matter, except to the extent
that either the EPA or the comparable state environmental agency initiates
enforcement proceedings or prosecutes a claim for environmental damages.
In June 1992, the Company was notified pursuant to the settlement agreement
that the State of Oregon had renewed its investigation of the Site and that such
investigation could lead to a final determination that further cleanup actions
were necessary.
D. Atlantic Richfield Company (ARCO) v. Current Controls, et al. By way
of background, the Atlantic Richfield Company ("ARCO") initially notified the
company in 1991 that based upon ARCO's investigation of the groundwater at the
Sinclair Refinery Superfund Site in Wellsville, New York, a portion of which
("Operable Unit II") allegedly is owned currently by an indirect, wholly-owned
subsidiary of the Company, ISC Development Corp., the shallow aquifer underlying
the Site was found to be contaminated with various hazardous substances. It is
ARCO's contention that manufacturing operations conducted at ISC Development
Corp.'s premises (which were leased to a third party) may have contributed to
this contamination, and that as an owner and/or operator, the Company would be
jointly and severally liable as a responsible party for the costs of remediation
under Section 107 of CERCLA.
On or about January 26, 1994, ARCO served the Company with a summons and
complaint in this action pending in the United States District Court for the
Western District of New York. The Company has been named as one of several
defendants whom the plaintiff claims should be held jointly and severally liable
for the costs incurred and to be incurred by ARCO in the remediation and cleanup
of portions of the Sinclair Refinery Superfund Site.
E. The Town of New Windsor v. Tesa Tuck, et al. In or about March 1993,
the Town of New Windsor instituted an action in the United States District Court
for the Southern District of New York against Lightron Corporation and other
defendants in which it is seeking, inter alia, a declaratory judgment decreeing
that Lightron and the other defendants are jointly and severally responsible to
contribute to the response costs incurred and to be incurred by the plaintiff in
connection with the remediation of a landfill located in the Town of New
Windsor, New York (the "Site"). The plaintiff's claim against Lightron is
premised upon its contention that Lightron of Cornwall, Inc., a former division
of Lightron Corporation, allegedly disposed of full and empty drums of lacquer
paints and thinners at the Site. The plaintiff has alleged in its complaint
that total response costs for the Site are estimated to be approximately
$8,000,000. Lightron has served and filed an answer denying the material
allegations of the complaint and asserting several affirmative defenses to
liability, as well as cross-claims against the other defendants and
counterclaims against the plaintiff. Also, the original defendants recently
have impleaded as third party defendants several other parties whom the
defendants are claiming have contributed to the contamination found to exist at
the Site.
Management believes, based on facts presently known to it, that the outcome
of the litigation proceedings described above will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
ITEM FOUR - SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
ITEM FIVE - MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Second Preferred Stock, Series I, are listed
for trading on the New York Stock Exchange. As of November 15, 1994 there were
approximately 16,000 record holders of the Company's Common Stock. The
following table shows for the periods indicated the quarterly range in the high
and low sales prices for these securities.
SECOND PREFERRED
COMMON STOCK STOCK, SERIES I
FISCAL QUARTER ENDED HIGH LOW HIGH LOW
-------------------- ---- --- ---- ---
December 31, 1992 $6 1/4 $4 1/8 $6 5/8 $4 3/4
March 31, 1993 7 3/8 6 7 3/8 6 1/2
June 30, 1993 8 1/8 6 8 6 5/8
September 30, 1993 8 3/4 6 1/4 8 5/8 6 3/4
December 31, 1993 9 1/8 8 9 8 1/4
March 31, 1994 9 3/4 7 3/4 9 3/4 8 3/4
June 30, 1994 9 6 5/8 9 1/8 7 1/8
September 30, 1994 8 1/8 6 7/8 8 1/8 7 1/4
On November 8, 1994 the Company's Board of Directors authorized a self-
tender offer for up to 3,000,000 shares of the Company's Common Stock at prices
between $8.00 and $9.25. The Company will determine the per share price within
this range that will allow it to purchase 3,000,000 shares or such lesser number
as may be tendered. The offer expires on December 9, 1994, unless extended.
ITEM SIX - SELECTED FINANCIAL DATA
YEARS ENDED SEPTEMBER 30,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Net sales $488,957,000 $436,949,000 $398,761,000 $343,343,000 $318,184,000
============ ============ ============ ============ ============
Income from
continuing
operations $ 29,705,000 $ 26,560,000 $ 21,594,000 $ 13,443,000 $ 6,427,000
============ ============ ============ ============ ============
Per share $ .80 $ .70 $ .59 $ .45 $ .22
============ ============ ============ ============ ============
Total assets $293,215,000 $270,270,000 $246,750,000 $303,592,000 $294,505,000
============ ============ ============ ============ ============
Long-term
obligations $ 15,538,000 $ 26,147,000 $ 28,406,000 $ 79,738,000 $ 86,602,000
============ ============ ============ ============ ============
No dividends on Common Stock were declared or paid during the five years ended
September 30, 1994.
ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1994 Compared to Fiscal 1993
Net sales for all business segments were $489.0 million, an increase of
$52.0 million over 1993. Net sales of the home and commercial products segment
increased by $49.5 million or 21.5% in 1994 compared to 1993. The increase is
principally attributable to higher unit sales of garage doors ($40.8 million)
due to expanded distribution and increased market share. Net sales of the
specialty plastic films segment increased by $1.3 million or 1.2% in 1994
compared to 1993 primarily due to increased unit sales. Net sales of the
electronic information and communication systems segment increased by $1.2
million or 1.3% in 1994 compared to 1993 due to new contract awards.
Operating income for all business segments was $55.4 million, an increase
of $5.6 million or 11.3% over 1993. Operating income of the home and commercial
products segment increased by $3.5 million or 16.4% in 1994 compared to 1993
principally due to the increased garage door sales partly offset by increased
distribution costs and start-up expenses for a new garage door product line.
Operating income of the specialty plastic films segment increased by $2.0
million or 10.8% compared to 1993 primarily due to the increased sales and
production efficiencies. Operating income of the electronic information and
communication systems segment increased slightly compared to 1993 due to the
effect of the higher net sales offset by increased bid and proposal
expenditures.
As previously reported, a major customer of the specialty plastic films
segment informed the Company in May 1994 of its intention to make a design
change which will phase out the segment's thin laminate program through the
first half of 1995. This change is based upon the lower cost of an alternative
material. During each of 1994 and 1993, sales of the thin laminate were
approximately $28 million. The Company has been approved as a supplier of other
moisture barrier films to this customer and expects to sell approximately $10
to $15 million per year of such films. The Company also has a number of ongoing
development projects with this and other customers and has directed its efforts
to find alternative business for the utilization of the plastic films segment's
production capacity. The loss of the thin laminate program will adversely
impact earnings subject to the ability of the Company to replace the business,
expand other areas of the specialty plastic films business and reduce operating
costs.
The Company has experienced increased raw material costs during the latter
part of fiscal 1994 for steel used in its building products business and for
polyethylene resin used in its specialty plastic films business. It is expected
that prices of these materials will increase further in fiscal 1995. The
Company has been able to pass on such increases to its customers in the past and
anticipates the ability to do so during fiscal 1995, although there is no
assurance as to the timing or extent that it will be able to do so.
Interest income increased by $1.0 million due to higher investable balances
during 1994.
Fiscal 1993 Compared to Fiscal 1992
Net sales for all business segments were $436.9 million, an increase of
$38.2 million over 1992. Net sales of the home and commercial products segment
increased by $43.3 million or 23.1% in 1993 compared to 1992. The increase is
principally attributable to higher unit sales of garage doors ($19.0 million)
due to expanded distribution and increased market share and to the increase
($24.0 million) from including a full year's sales for businesses acquired in
March 1992. Net sales of the specialty plastic films segment increased by $5.9
million or 5.5% in 1993 compared to 1992. Increased unit sales of products
other than thin laminate ($14.2 million) and higher average selling prices for
these products ($1.3 million) offset decreased net sales of the thin laminate
product due to selling price reductions described below ($5.0 million) and lower
unit sales ($4.6 million). The thin laminate program with the specialty
plastic films segment's major customer was revised in September 1992. Among
other changes, the revision provided for a reduction of selling prices that had
the effect of reducing the segment's thin laminate sales. Net sales of the
electronic information and communication systems segment decreased by $11.0
million or 10.6% in 1993 compared to 1992 due to fewer defense related awards
and delays in funding existing programs.
Operating income for all business segments was $49.8 million, an increase
of $5.7 million or 13.0% over 1992. Operating income of the home and commercial
products segment increased by $7.0 million or 48.1% in 1993 compared to 1992
principally due to the increased garage door sales. Operating income of the
specialty plastic films segment decreased by $.9 million or 4.7% compared to
1992 primarily due to lower margins on the thin laminate program in connection
with the previously mentioned price reductions, substantially offset by an
overall increase in unit sales. Operating income of the electronic information
and communication systems segment decreased by $.4 million or 3.6% compared to
1992. The effect of the lower net sales was partially offset by reduced bid and
proposal expenditures ($2.6 million).
Interest expense decreased by $2.3 million in 1993 compared to 1992
primarily due to the January 1992 redemption of the Company's 12 1/2%
Subordinated Debentures and other debt reductions.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated by operations was $36.0 million after income tax
payments of $16.8 million. Cash, cash equivalents and marketable securities at
September 30, 1994 were $58.4 million compared to $37.6 million a year earlier
and working capital increased by $4.3 million to $121.0 million at September 30,
1994.
Cash flows used in investing activities included $11.6 million of proceeds
received from the sale of the Company's ownership interest in Oneita Industries,
Inc., as well as capital expenditures of $9.2 million and acquisitions by the
building products business of $1.9 million. The Company also rents various real
property and equipment through noncancellable operating leases. Related future
minimum lease payments due in 1995 aggregate $14.5 million and are expected to
be funded through operating cash flows. There are no material commitments for
future capital expenditures though it is likely that cash outflows for capital
asset acquisitions and leases will continue.
Cash flows used in financing activities included expenditures of $15.4
million to acquire 1,930,600 shares of Common Stock in connection with the
Company's stock repurchase program covering up to 4,000,000 shares of its Common
and Preferred Stock. On November 8, 1994, the Company's Board of Directors
authorized a self-tender offer for up to an additional 3,000,000 shares of the
Company's Common Stock at prices between $8.00 and $9.25. The Company will
determine the per share price within this range that will allow it to purchase
3,000,000 shares or such lesser number as may be tendered. The offer expires
in December 1994. The self-tender offer will be funded by existing cash and
marketable securities.
Anticipated cash flows from operations, together with existing cash and
marketable securities and lease line availability, should be adequate to finance
presently anticipated working capital and capital expenditure requirements and
to repay long-term debt as it matures.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," establishes financial
accounting and reporting standards for investments and is effective for the
fiscal year beginning October 1, 1994. Adoption of this standard will not have
a material effect on the Company's financial position or results of operations.
ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company and its subsidiaries and the report
thereon of Arthur Andersen LLP, dated November 8, 1994 are included herein:
- Report of Independent Public Accountants.
- Consolidated Balance Sheets at September 30, 1994 and 1993.
- Consolidated Statements of Income, Cash Flows and Shareholders'
Equity for the years ended September 30, 1994, 1993, 1992.
- Notes to Consolidated Financial Statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Instrument Systems Corporation:
We have audited the accompanying consolidated balance sheets of Instrument
Systems Corporation (a Delaware corporation) and subsidiaries as of September
30, 1994 and 1993 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended September 30, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Instrument Systems
Corporation and subsidiaries as of September 30, 1994 and 1993 and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in 1994
the Company changed its method of accounting for income taxes.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
consolidated financial statements and schedules are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Roseland, New Jersey Arthur Andersen LLP
November 8, 1994
INSTRUMENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
1994 1993
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 28,659,000 $ 26,466,000
Marketable securities (Note 1) 29,727,000 11,095,000
Accounts receivable, less allowance
for doubtful accounts of $3,659,000
in 1994 and $3,860,000 in 1993 59,191,000 51,885,000
Contract costs and recognized income
not yet billed (Note 1) 29,194,000 35,453,000
Inventories (Note 1) 68,918,000 55,985,000
Investment in affiliate (Note 6) --- 11,615,000
Prepaid expenses and other current
assets 6,987,000 7,094,000
------------ ------------
Total current assets 222,676,000 199,593,000
------------ ------------
Property, Plant and Equipment, at
cost, net of depreciation and
amortization (Note 1) 49,890,000 49,807,000
------------ ------------
Other Assets:
Costs in excess of fair value of
net assets of businesses acquired,
net (Note 1) 18,240,000 17,695,000
Other 2,409,000 3,175,000
------------ ------------
20,649,000 20,870,000
------------ ------------
$293,215,000 $270,270,000
============ ============
INSTRUMENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
1994 1993
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current and refinanced portion of
long-term debt (Note 3) $ 9,542,000 $ 1,385,000
Accounts payable 33,704,000 30,896,000
Accrued liabilities (Note 2) 48,058,000 44,700,000
Federal income taxes 10,324,000 5,829,000
------------ ------------
Total current liabilities 101,628,000 82,810,000
------------ ------------
Long-Term Debt (Note 3) 15,538,000 26,147,000
------------ ------------
Shareholders' Equity (Note 4):
Preferred stock, par value $.25 per
share, authorized 3,000,000 shares --
Second Preferred Stock, Series I,
authorized 1,950,000 shares,
issued 1,677,129 shares in 1994
and 1,680,491 shares in 1993
(liquidation value $16,771,000
and $16,805,000, respectively) 419,000 420,000
Common stock, par value $.25 per share,
authorized 85,000,000 shares, issued
33,887,739 shares in 1994 and
35,803,344 shares in 1993 8,472,000 8,951,000
Capital in excess of par value 78,614,000 94,159,000
Retained earnings 89,711,000 60,426,000
------------ ------------
177,216,000 163,956,000
Less --
Deferred compensation (900,000) (1,298,000)
Treasury shares, at cost, 34,500
common shares in 1994 and 202,900
common shares in 1993 (267,000) (1,345,000)
------------ ------------
Total shareholders' equity 176,049,000 161,313,000
------------ ------------
Commitments and Contingencies
(Note 5)
$293,215,000 $270,270,000
============ ============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
INSTRUMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
------------ ------------ ------------
Net sales $488,957,000 $436,949,000 $398,761,000
Cost of sales 344,485,000 308,711,000 281,051,000
------------ ------------ ------------
144,472,000 128,238,000 117,710,000
Selling, general and administrative expenses 94,529,000 83,979,000 78,915,000
------------ ------------ ------------
49,943,000 44,259,000 38,795,000
------------ ------------ ------------
Other income (expense):
Interest expense (1,803,000) (1,942,000) (4,214,000)
Interest income 1,885,000 929,000 865,000
Other, net 322,000 1,020,000 645,000
------------ ------------ ------------
404,000 7,000 (2,704,000)
------------ ------------ ------------
Income from continuing operations
before income taxes 50,347,000 44,266,000 36,091,000
------------ ------------ ------------
Provision for income taxes (Note 1):
State and foreign 3,558,000 3,330,000 3,370,000
Federal 17,084,000 14,376,000 11,127,000
------------ ------------ ------------
20,642,000 17,706,000 14,497,000
------------ ------------ ------------
Income from continuing operations 29,705,000 26,560,000 21,594,000
------------ ------------ ------------
Discontinued operations, net of
income tax effect (Note 6):
Operating income (loss) --- (537,000) 2,474,000
Provision for loss on disposal --- (7,938,000) ---
------------ ------------ ------------
--- (8,475,000) 2,474,000
------------ ------------ ------------
Income before extraordinary item 29,705,000 18,085,000 24,068,000
Extraordinary item, net of income
tax effect (Note 3) --- --- (100,000)
------------ ------------ ------------
Net income $ 29,705,000 $ 18,085,000 $ 23,968,000
============ ============ ============
Income per share of common stock (Note 1):
Continuing operations $ .80 $ .70 $ .59
Discontinued operations -- (.22) .07
------------ ------------ ------------
Net income $ .80 $ .48 $ .66
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of
these statements.
INSTRUMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,705,000 $ 18,085,000 $ 23,968,000
------------ ------------ ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 9,754,000 9,458,000 8,479,000
Provision for losses on accounts
receivable 805,000 627,000 942,000
Deferred income taxes (133,000) (1,593,000) (2,608,000)
Loss from early extinguishment
of debt --- --- 1,574,000
(Income) loss from discontinued
operations --- 10,681,000 (2,870,000)
Change in assets and liabilities:
Increase in accounts receivable
and contract costs and recognized
income not yet billed (1,477,000) (16,922,000) (9,572,000)
Increase in inventories (12,385,000) (8,702,000) (1,780,000)
(Increase) decrease in prepaid
expenses and other assets (429,000) 513,000 (731,000)
Increase in accounts payable,
accrued liabilities and
Federal income taxes 10,185,000 7,274,000 11,226,000
Other changes, net (26,000) 195,000 (321,000)
------------ ------------ ------------
Total adjustments 6,294,000 1,531,000 4,339,000
------------ ------------ ------------
Net cash provided by operating
activities 35,999,000 19,616,000 28,307,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in marketable securities (18,632,000) (4,676,000) (6,419,000)
Proceeds from sale of property, plant
and equipment 75,000 737,000 200,000
Acquisition of property, plant and
equipment (9,241,000) (8,438,000) (8,690,000)
Net proceeds from sale of stock of
affiliate 11,615,000 --- 12,508,000
Acquired businesses (1,946,000) --- (14,626,000)
Decrease in equipment lease deposits
and other 1,219,000 1,902,000 1,004,000
------------ ------------ ------------
Net cash used in investing
activities (16,910,000) (10,475,000) (16,023,000)
------------ ------------ ------------
INSTRUMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (15,415,000) (1,562,000) (5,000)
Proceeds from issuance of long-term
debt 7,100,000 4,500,000 13,272,000
Payment of long-term debt (8,464,000) (3,580,000) (63,385,000)
Net proceeds from sale of stock --- --- 36,274,000
Other, net (117,000) (40,000) 501,000
------------ ------------ ------------
Net cash used in financing
activities (16,896,000) (682,000) (13,343,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,193,000 8,459,000 (1,059,000)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 26,466,000 18,007,000 19,066,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 28,659,000 $ 26,466,000 $ 18,007,000
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these
statements.
INSTRUMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
For the Years Ended September 30, 1994, 1993 and 1992
SECOND PREFERRED CAPITAL IN
STOCK, SERIES I COMMON STOCK EXCESS OF RETAINED DEFERRED TREASURY SHARES
SHARES PAR VALUE SHARES PAR VALUE PAR VALUE EARNINGS COMPENSATION SHARES COST
--------- --------- ---------- --------- ---------- -------- ------------ --------- -------
Balances, September 30, 1991 1,705,571 $426 31,869,418 $7,967 $64,217 $19,221 $2,528 3,454,509 $ 6,354
Amortization of deferred
compensation --- --- --- --- --- --- (653) --- ---
Sale of Common Stock --- --- 6,900,000 1,725 34,549 --- --- --- ---
Stock dividend on Second
Preferred Stock, Series I
(Note 4) --- --- 73,950 18 407 (428) --- --- ---
Purchase of treasury shares --- --- --- --- --- --- --- 3,375 5
Exercise of stock options
(Note 4) --- --- 241,500 61 447 --- --- --- ---
Other (25,010) (6) 25,010 6 17 --- --- --- ---
Net income --- --- --- --- --- 23,968 --- --- ---
--------- ---- ---------- ------ ------- ------- ------ ---------- -------
Balances, September 30, 1992 1,680,561 420 39,109,878 9,777 99,637 42,761 1,875 3,457,884 6,359
Amortization of deferred
compensation --- --- --- --- --- --- (577) --- ---
Cash dividend on Second
Preferred Stock, Series I
(Note 4) --- --- --- --- --- (420) --- --- ---
Purchase of treasury shares --- --- --- --- --- --- --- 249,400 1,562
Exercise of stock options
(Note 4) --- --- 186,500 47 302 --- --- --- ---
Retirement of treasury shares --- --- (3,504,384) (876) (5,700) --- --- (3,504,384) (6,576)
Other (70) --- 11,350 3 (80) --- --- --- ---
Net income --- --- --- --- --- 18,085 --- --- ---
--------- ---- ---------- ------ ------- ------- ------ ---------- ------
Balances, September 30, 1993 1,680,491 420 35,803,344 8,951 94,159 60,426 1,298 202,900 1,345
Amortization of deferred
compensation --- --- --- --- --- --- (563) --- ---
Cash dividend on Second
Preferred Stock, Series I
(Note 4) --- --- --- --- --- (420) --- --- ---
Purchase of treasury shares --- --- --- --- --- --- --- 1,930,600 15,415
Exercise of stock options
(Note 4) --- --- 114,500 29 152 --- --- --- ---
Retirement of treasury shares --- --- (2,099,000) (525) (15,968) --- --- (2,099,000) (16,493)
Other (3,362) (1) 68,895 17 271 --- 165 --- ---
Net income --- --- --- --- --- 29,705 --- --- ---
--------- ---- ---------- ------ ------- ------- ------ ---------- -------
Balances, September 30, 1994 1,677,129 $419 33,887,739 $8,472 $78,614 $89,711 $ 900 34,500 $ 267
========= ==== ========== ====== ======= ======= ====== ========== =======
The accompanying notes to consolidated financial statements are an integral part of these statements.
INSTRUMENT SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The consolidated financial statements include the accounts of Instrument
Systems Corporation and all subsidiaries. All significant intercompany items
have been eliminated in consolidation.
Cash flows and investments
Marketable securities consist primarily of U.S. government obligations and
are carried at amortized cost which approximates market. Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," establishes financial accounting and reporting standards for
investments and is effective for the fiscal year beginning October 1, 1994.
Adoption of this standard will not have a material effect on the Company's
financial position or results of operations. The Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. Cash payments for interest expense were $1,824,000,
$1,875,000 and $4,982,000 in 1994, 1993 and 1992, respectively.
Accounting for long-term contracts
The Company records sales and gross profits on its long-term contracts on
a percentage-of-completion basis. The Company determines sales and gross
profits by (1) relating costs incurred to current estimates of total
manufacturing costs of such contracts or (2) based upon a unit of shipment
basis. General and administrative expenses are expensed as incurred. Revisions
in estimated profits are made in the period in which the circumstances requiring
the revision become known. Provisions are made currently for anticipated losses
on uncompleted contracts.
"Contract costs and recognized income not yet billed" consists of
recoverable costs and accrued profit on long-term contracts for which billings
had not been presented to the customers because the amounts were not billable
at the balance sheet date.
Inventories
Inventories, stated at the lower of cost (first-in, first-out or average)
or market, include material, labor and manufacturing overhead costs, and are
comprised of the following:
SEPTEMBER 30,
1994 1993
----------- -----------
Finished goods $16,664,000 $13,136,000
Work in process 26,674,000 22,383,000
Raw materials and supplies 25,580,000 20,466,000
----------- -----------
$68,918,000 $55,985,000
=========== ===========
Property, plant and equipment
Depreciation of property, plant and equipment is provided primarily on a
straight-line basis over the estimated useful lives of the assets.
Leasehold improvements are amortized over the life of the lease or life of
the improvement, whichever is shorter.
Property, plant and equipment consists of the following:
SEPTEMBER 30,
1994 1993
----------- -----------
Land, buildings and building
improvements $27,304,000 $23,161,000
Machinery and equipment 59,454,000 57,415,000
Leasehold improvements 7,975,000 10,170,000
----------- -----------
94,733,000 90,746,000
Less--Accumulated
depreciation and
amortization 44,843,000 40,939,000
----------- -----------
$49,890,000 $49,807,000
=========== ===========
Maintenance and repair expense was $8,208,000, $8,096,000 and $8,163,000
in 1994, 1993 and 1992, respectively.
Costs in excess of fair value of net assets of businesses acquired ("Goodwill").
Goodwill is being amortized on a straight-line basis over a period of forty
years. At September 30, 1994 and 1993, accumulated amortization of goodwill was
$3,618,000 and $3,087,000, respectively.
Income taxes
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this
standard, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using tax rates scheduled to be in effect when such differences
reverse. Previously, income taxes were determined using the deferred method
prescribed by APB Opinion No. 11. The adoption of Statement No. 109 did not
have a material effect on the Company's financial position or results of
operations and prior years have not been restated. The components of income tax
expense included in continuing operations were as follows:
1994 1993 1992
----------- ----------- -----------
Current $20,775,000 $17,093,000 $16,709,000
Deferred (133,000) 613,000 (2,212,000)
----------- ----------- -----------
$20,642,000 $17,706,000 $14,497,000
=========== =========== ===========
The primary components of deferred taxes result from differences in the
reporting of depreciation, the allowance for doubtful accounts, other non-
deductible accruals and, in 1992, $1,548,000 related to the difference between
the book and tax basis of the Company's investment in Oneita (see Note 6).
Cash payments for income taxes were $16,809,000, $15,151,000 and
$11,283,000 in 1994, 1993 and 1992, respectively.
The following table indicates the significant elements contributing to the
difference between the U.S. Federal statutory tax rate and the effective tax
rate:
1994 1993 1992
----- ----- -----
U.S. Federal statutory
tax rate 35.0% 34.8% 34.0%
State and foreign
income taxes 4.6 4.9 6.2
Other 1.4 .3 -
---- ---- ----
Effective tax rate 41.0% 40.0% 40.2%
==== ==== ====
Research and development costs and advertising expense
Research and development costs not recoverable under contractual
arrangements are charged to expense as incurred. Approximately $4,000,000,
$3,600,000 and $4,800,000 for 1994, 1993 and 1992, respectively, was incurred
on such research and development.
Advertising expense was $5,600,000, $5,000,000 and $3,300,000 in 1994, 1993
and 1992, respectively.
Income per share of Common Stock
Income per share is calculated using the weighted average number of shares
of Common Stock outstanding during each period, adjusted to reflect the dilutive
effect of shares issuable for common stock equivalents. Shares used in
computing income per share were 37,102,000 in 1994, 37,989,000 in 1993 and
36,314,000 in 1992.
2. ACCRUED LIABILITIES:
At September 30, 1994 and 1993, accrued liabilities included $13,856,000
and $13,323,000, respectively, for payroll and other employee benefits.
3. LONG-TERM DEBT:
The Company's long-term debt outstanding at September 30, 1994 relates
primarily to real estate mortgages, with interest rates ranging from 8.0% to
8.7% and maturities through 2004.
The following are the maturities of long-term debt outstanding at September
30, 1994 for each of the succeeding five years:
1995 $9,542,000
1996 562,000
1997 8,918,000
1998 248,000
1999 256,000
The current portion of long-term debt at September 30, 1994 includes
$9,000,000 which was outstanding under a long-term debt agreement and,
subsequent to year-end, was refinanced under a short-term line of credit.
Interest on this obligation is at approximately the prime rate (7.75% at
September 30, 1994).
The extraordinary item in the 1992 consolidated statement of income relates
to the early extinguishment of debt.
4. SHAREHOLDERS' EQUITY:
During 1994, the Company expended $15,415,000 to acquire 1,930,600 shares
of Common Stock in connection with its stock repurchase program covering up to
4,000,000 shares of its Common and Preferred Stock. On November 8, 1994 the
Company's Board of Directors authorized a self-tender offer for up to 3,000,000
additional shares of the Company's Common Stock at prices between $8.00 and
$9.25. The Company will determine the per share price within this range that
will allow it to purchase 3,000,000 shares or such lesser number as may be
tendered. The offer expires in December 1994.
The Company's Second Preferred Stock, Series I --
a) is convertible into Common Stock on the basis of one share of Common
Stock for each share of Second Preferred Stock, Series I, subject to
certain adjustments;
b) is redeemable at $10.00 per share at the option of the Company;
c) has a liquidation value of $10.00 per share; and
d) has the same voting rights and privileges as Common Stock.
The holders of Second Preferred Stock, Series I are entitled to receive for
each share of Second Preferred Stock, an annual dividend of --
a) $.25 in cash; or
b) shares of Common Stock of the Company having a market value of $.25,
but in no event more than one-quarter of a share of Common Stock per
share of Second Preferred Stock.
The Board of Directors, at the time of the dividend declaration, shall
determine (in its discretion) whether the dividend shall be in cash or Common
Stock.
The Company has an Employee Stock Ownership Plan ("ESOP") which covers most
of the Company's nonunion employees. Contributions to the ESOP (in cash or
equity securities of the Company) may be made in such amounts as the Board of
Directors determines in its sole discretion. The fair market value of
contributions to the ESOP are charged to income as made. The ESOP has a loan
agreement the proceeds of which were used to purchase equity securities of the
Company. Borrowings under the loan agreement are guaranteed by the Company and
bear interest at approximately the prime rate. The Company will provide the
funds with which the ESOP will repay the loan and will treat those payments as
an expense. The outstanding balance of the loan has been reflected as a
liability in the accompanying consolidated balance sheets with a like amount of
deferred compensation recorded as a reduction of shareholders' equity.
The Company has two non-qualified stock option plans under which options
for an aggregate of 2,000,000 shares of Common Stock may be granted. The plans
provide for the granting of options at an exercise price of not less than 100%
of the fair market value per share at date of grant. Options generally expire
five or ten years after date of grant and become exercisable in installments as
determined by the Board of Directors. Transactions under the plans, and under
an Incentive Stock Option plan that expired in 1992, are as follows:
NUMBER OPTION
OF SHARES PRICE
--------- --------------
Outstanding at September 30,
1992 915,000 $1.00 to $2.25
Granted 323,000 $5.50 to $7.00
Exercised (186,500) $1.50 to $5.50
Terminated (500) $2.25
---------
Outstanding at September 30,
1993 1,051,000 $1.00 to $7.00
Granted 907,000 $7.125 to $9.125
Exercised (114,500) $1.00 to $7.00
Terminated (1,500) $7.00
---------
Outstanding at September 30,
1994 1,842,000 $1.50 to $9.125
=========
The outstanding options expire at various dates through 2004. Options for
889,500 shares are exercisable at September 30, 1994 at $1.50 to $8.625 per
share. Outstanding options include grants in 1994 covering 680,000 shares of
stock that do not become exercisable unless the market price of the Common Stock
has attained an average price of $10 per share for 10 consecutive trading days,
or 60 days before the options expire, whether or not the price target has been
met. As of September 30, 1994, options for 329,500 shares were available for
future grants.
The Company has an Outside Director Stock Award Plan (the "Outside Director
Plan"), which was approved by the shareholders in 1994, under which 300,000
shares may be issued to non-employee directors. Annually, each eligible
director is awarded shares of the Company's Common Stock having a value of
$10,000 which vests over a three-year period. For shares issued under the
Outside Director Plan, the fair market value of the shares at the date of
issuance will be amortized to compensation expense over the vesting period. The
related deferred compensation has been reflected as a reduction of shareholders'
equity. In 1994, 10,770 shares were issued under the Outside Director Plan.
In April 1986, the Board of Directors declared a dividend distribution of
one Common Stock purchase Right for each outstanding share of Common Stock. The
Rights were amended in November 1994. These Rights will expire in 1996 unless
redeemed earlier and, initially, will trade with the Common Stock. They are not
presently exercisable and have no voting power. In the event a person acquires
15% or more, or makes a tender offer which if consummated would result in such
person owning 15% or more of the Common Stock, the Rights detach from the Common
Stock and become exercisable and entitle a holder to buy one-half of one share
of Common Stock for $6.00 (adjustable to prevent dilution). If a person or
group acquires beneficial ownership of 15% or more of the Company's outstanding
Common Stock, each Right will entitle its holder (other than such person or
group) to purchase, at the then-current exercise price of the Right, a number
of shares of the Company's Common Stock having a market value of twice the then-
current exercise price of the Right. In addition, if the Company is acquired
in a merger or other business combination, each Right will entitle its holder
to purchase, at the then-current exercise price, a number of the acquiring
company's common shares having a market value of twice the then-current exercise
price of the Right. Prior to the acquisition by a person or group of beneficial
ownership of 15% or more of the Company's outstanding Common Stock, the Rights
are redeemable for $.01 per Right at the option of the Board of Directors.
As of September 30, 1994, shares of the Company's authorized but unissued
Common Stock were reserved in connection with the following:
SHARES
----------
Conversion of outstanding Second
Preferred Stock, Series I 1,677,129
Stock option plans 2,171,500
Exercise of Common Stock purchase
warrants 226,414
Exercise of Common Stock purchase
Rights 18,964,141
----------
23,039,184
==========
5. COMMITMENTS AND CONTINGENCIES:
The Company and its subsidiaries rent real property and equipment under
operating leases expiring at various dates. Most of the real property leases
have escalation clauses related to increases in real property taxes.
Future minimum payments under noncancellable operating leases consisted of
the following at September 30, 1994:
1995 $14,500,000
1996 10,900,000
1997 8,500,000
1998 6,700,000
1999 5,600,000
Later years 5,400,000
Rent expense for all operating leases, net of subleases, totalled
approximately $18,600,000, $16,900,000 and $13,900,000 in 1994, 1993 and 1992,
respectively.
The Company is subject to various laws and regulations concerning the
environment, and is currently participating in administrative or court
proceedings involving several sites under these laws, usually as one of a group
of potentially responsible parties. These proceedings are at a preliminary
stage, and it is impossible to estimate with any certainty the amount of the
liability, if any, of the Company alone or in relation to that of any other
responsible parties, or the total cost of remediation and the timing and extent
of remedial actions which may ultimately be required by governmental
authorities.
In view of the inherent difficulty in predicting the outcome of litigation
and governmental proceedings, management cannot state what the eventual outcome
of such litigation and proceedings will be. However, management believes, based
on facts presently known to it, that the outcome of such litigation and
proceedings will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Two officers of the Company have employment agreements, as amended, for a
term ending in 2000. The agreements provide for salary and, under certain
conditions, incentive bonuses. The agreements also provide that in the event
there is a change in the control of the Company, as defined therein, the
officers have the option to terminate the agreements and receive a lump sum
payment based upon the compensation payable over the balance of the agreements.
As of September 30, 1994, the amount payable in the event of such termination
would be approximately $38,000,000.
6. DISCONTINUED OPERATIONS:
During 1993, the Company decided to withdraw from the apparel business and
sell its 25% interest in Oneita Industries, Inc., which ceased to be a
consolidated subsidiary in 1992. The sale of the investment was completed in
October 1993 for approximately $11,600,000 and the financial statements reflect
a related charge in 1993 of $7,938,000 (net of income tax effect of $1,930,000).
7. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Quarterly results of operations for the years ended September 30, 1994 and
1993 are as follows:
QUARTERS ENDED
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1994 1994 1994 1993
------------- ------------ ------------ ------------
Net sales $141,658,000 $125,287,000 $105,857,000 $116,155,000
Gross profit 42,185,000 36,621,000 31,299,000 34,367,000
Net income 10,603,000 7,371,000 4,926,000 6,805,000
Income per share of
common stock $ .29 $ .20 $ .13 $ .18
============ ============ ============ ============
QUARTERS ENDED
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1993 1993 1993 1992
============= ============ ============ ============
Net sales $130,469,000 $108,164,000 $ 94,734,000 $103,582,000
Gross profit 39,117,000 31,483,000 27,121,000 30,517,000
Income from continuing
operations 9,560,000 6,759,000 4,629,000 5,612,000
Discontinued operations (825,000) (8,016,000) 193,000 173,000
Net income 8,735,000 (1,257,000) 4,822,000 5,785,000
Income per share of
common stock:
Continuing operations $ .25 $ .18 $ .12 $ .15
Discontinued operations (.02) (.21) .01 --
----------- ----------- ------------ ------------
$ .23 $ (.03) $ .13 $ .15
=========== =========== ============ ============
Earnings per share are computed independently for each of the quarters presented, on the
basis described in Note 1. The sum of the quarters may not be equal to the full year
earnings per share amounts.
8. BUSINESS SEGMENTS:
The Company's principal business segments are as follows -- Home and
Commercial Products (manufacture and sale of garage doors and other building
products, hardware primarily for the food service industry, and synthetic
batting); Electronic Information and Communication Systems (communication and
information systems for government and commercial markets); and Specialty
Plastic Films (manufacture and sale of plastic films for disposable surgical and
patient care products, infants diapers and adult incontinence care products).
Information on the Company's business segments is as follows:
SEPTEMBER 30,
1994 1993 1992
------------ ------------ ------------
Net sales --
Home and commercial products $280,342,000 $230,809,000 $187,485,000
Electronic information and
communication systems 94,001,000 92,835,000 103,840,000
Specialty plastic films 114,614,000 113,305,000 107,436,000
------------ ------------ ------------
$488,957,000 $436,949,000 $398,761,000
============ ============ ============
Operating income --
Home and commercial products $ 25,103,000 $ 21,569,000 $ 14,563,000
Electronic information and
communication systems 9,577,000 9,514,000 9,867,000
Specialty plastic films 20,752,000 18,737,000 19,663,000
------------ ------------ ------------
Total operating income 55,432,000 49,820,000 44,093,000
General corporate expenses (5,167,000) (4,541,000) (4,653,000)
Interest income (expense), net 82,000 (1,013,000) (3,349,000)
------------ ------------ ------------
Income from continuing operations
before income taxes $ 50,347,000 $ 44,266,000 $ 36,091,000
============ ============ ============
Identifiable assets --
Home and commercial products $112,799,000 $ 96,198,000 $ 84,156,000
Electronic information and
communication systems 86,962,000 89,264,000 77,025,000
Specialty plastic films 43,205,000 41,592,000 42,232,000
Corporate 50,249,000 43,216,000 43,337,000
------------ ------------ ------------
$293,215,000 $270,270,000 $246,750,000
============ ============ ============
Capital expenditures --
Home and commercial products $ 6,446,000 $ 2,831,000 $ 2,649,000
Electronic information and
communication systems 1,941,000 2,231,000 2,189,000
Specialty plastic films 793,000 3,374,000 3,777,000
Corporate 61,000 2,000 75,000
------------ ------------ ------------
$ 9,241,000 $ 8,438,000 $ 8,690,000
============ ============ ============
Depreciation and amortization --
Home and commercial products $ 3,284,000 $ 2,799,000 $ 2,155,000
Electronic information and
communication systems 3,150,000 3,277,000 3,045,000
Specialty plastic films 3,169,000 3,194,000 2,868,000
Corporate 151,000 188,000 411,000
------------ ------------ ------------
$ 9,754,000 $ 9,458,000 $ 8,479,000
============ ============ ============
Sales to a customer of the specialty plastic films business were
approximately 8%, 10% and 14% of consolidated net sales in 1994, 1993 and 1992,
respectively. Sales to the United States Government and its agencies, either as
a prime contractor or subcontractor, aggregated approximately $62,000,000 for
1994, $60,000,000 for 1993 and $75,000,000 for 1992, all of which are included
in the electronic information and communication systems segment. Sales between
business segments are not material. In computing operating income, none of the
following have been added or deducted -- general corporate expenses, net
interest income or expense and income taxes. Assets by business segment are
those identifiable assets that are used in the Company's operations in each
segment. Corporate assets are principally cash and marketable securities.
Included in capital expenditures in 1994 of the home and commercial products
segment was $4,200,000 for the purchase of a building that was previously
leased.
ITEM NINE - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
The information required by Part III is incorporated by reference to the
Company's definitive proxy statement in connection with its Annual Meeting of
Stockholders scheduled to be held in February, 1995, to be filed with the
Securities and Exchange Commission within 120 days following the end of the
Company's fiscal year ended September 30, 1994. Information relating to the
officers of the Registrant appears under Item I of this report.
PART IV
ITEM FOURTEEN - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
The following consolidated financial statements of Instrument Systems
Corporation and subsidiaries are included in Item 8:
Page
----
(a) 1. Financial Statements
Consolidated Balance Sheets at September 30,
1994 and 1993............................................... 16
Consolidated Statements of Income for the Years
Ended September 30, 1994, 1993 and 1992..................... 17
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1994, 1993 and 1992............... 18
Consolidated Statements of Shareholders' Equity
for the Years Ended September 30, 1994, 1993
and 1992.................................................... 19
Notes to Consolidated Financial Statements....................... 20
Filed Herewith on
Page Number (1)
-----------------
(a) 2. Schedule
I Marketable Securities.............................. S-1
VIII Valuation and Qualifying Accounts.................. S-2
(1) Schedules other than those listed are omitted because they are not
applicable or because the information required is included in the
consolidated financial statements.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
Exhibit No.
3.1 Restated Certificate of Incorporation (Exhibit 3(a) of Form S-2
Registration Statement No. 33-9655)
3.2 By-laws as amended (Exhibit 3 of Current Report on Form 8-K dated
November 8, 1994)
4.1 Credit Agreement dated April 6, 1990 between the Registrant and
a lending institution (Exhibit 10 to Current Report on Form 8-K
dated May 8, 1990)
4.2 Amendment to Rights Agreement dated as of November 8, 1994
between Registrant and American Stock Transfer Company (Exhibit
4.1 of Current Report on Form 8-K dated November 8, 1994)
10.1 Employment Agreement dated March 1, 1983 between the Registrant
and Robert Balemian, as amended (Exhibit 10 of Current Report on
Form 8-K dated March 1, 1983, Exhibit 10 of Current Report on
Form 8-K dated March 2, 1983, Exhibit 10(a) of Current Report on
Form 8-K dated March 15, 1984, Exhibit 10 of Current Report on
Form 8-K dated May 4, 1987, Exhibit 10(a) of Current Report on
Form 8-K dated February 13, 1989, Exhibit 10 of Current Report on
Form 8-K dated February 28, 1990, Exhibit 10 of Current Report
on Form 8-K dated February 25, 1991 and Exhibit 10 of Current
Report on Form 8-K dated May 28, 1991)
10.2 Employment Agreement dated March 1, 1983 between the Registrant
and Harvey R. Blau, as amended (Exhibit 10 of Current Report on
Form 8-K dated March 1, 1983, Exhibit 10 of Current Report on
Form 8-K dated March 2, 1983, Exhibit 10(b) of Current Report on
Form 8-K dated March 15, 1984, Exhibit 10 of Current Report on
Form 8-K dated May 4, 1987, Exhibit 10(a) of Current Report on
Form 8-K dated February 13, 1989, and Exhibit 10 of Current
Report on Form 8-K dated February 28, 1990, Exhibit 10 of
Current Report on Form 8-K dated February 25, 1991 and Exhibit
10 of Current Report on Form 8-K dated May 28, 1991)
10.3 Form of Trust Agreement between the Registrant and U.S. Trust
Company of California, N.A., as Trustee relating to the Company's
Employee Stock Ownership Plan
10.4 Incentive Stock Option Plan, as amended (including form of Stock
Option) (Exhibit 4(a) of Form S-8 Registration Statement No.
33-14259)
10.5 Restricted Management Stock Bonus Plan, as amended, (Exhibit
4(b) of Form S-8 Registration Statement No. 33-14259)
10.6 Form of Stock Option Agreement (Exhibit 10(b) of Current Report
on Form 8-K dated February 13, 1989)
10.7 Warrant Agreement to Officer (Exhibit 28 of Current Report on
Form 8-K dated March 2, 1983)
10.8 Agreement dated October 5, 1993 between Gintel & Co., L.P. and
the Registrant (Exhibit 7(c)(2) of Current Report on Form 8-K
dated October 6, 1993)
10.9 1992 Non-Qualified Stock Option Plan (Exhibit 10.10 of Annual
Report on Form 10-K for the year ended September 30, 1993)
10.10 Non-Qualified Stock Option Plan (Exhibit 10.12 of Annual Report
on Form 10-K for the year ended September 30, 1988)
10.11 Form of Indemnification Agreement between the Registrant and its
officers and directors (Exhibit 28 to Current Report on Form 8-K
dated May 3, 1990)
10.12 Outside Director Stock Award Plan (Exhibit 4 of Form S-8
Registration Statement No. 33-52319)
21 The following lists the Company's significant subsidiaries all
of which are wholly-owned by the Company. The names of certain
subsidiaries which do not, when considered in the aggregate
constitute a significant subsidiary, have been omitted.
State of
Name of Subsidiary Incorporation
------------------ -------------
Clopay Corporation Maryland
Telephonics Corporation Delaware
Standard-Keil Industries, Inc. Delaware
Lightron Corporation Delaware
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
99 Additional Exhibit
The following undertakings are incorporated into the Company's Registration
Statements on Form S-8 (Registration Nos. 2-82183, 2-99536, 33-14259, 33-39090
and 33-52319).
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any fact or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(i) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 5th day of
December, 1994.
INSTRUMENT SYSTEMS CORPORATION
By: Harvey R. Blau
---------------------
Harvey R. Blau
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on December 5, 1994 by the following persons in the
capacities indicated:
Harvey R. Blau Chairman of the Board
- - -------------------------- (Principal Executive Officer)
Harvey R. Blau
Robert Balemian President and Director
- - -------------------------- (Principal Operating and Financial Officer)
Robert Balemian
Patrick Alesia Vice President and Treasurer
- - -------------------------- (Chief Accounting Officer)
Patrick Alesia
Bertrand Bell Director
- - --------------------------
Bertrand Bell
Robert Bradley Director
- - --------------------------
Robert Bradley
Abraham M. Buchman Director
- - --------------------------
Abraham M. Buchman
Clarence A. Hill, Jr. Director
- - --------------------------
Clarence A. Hill, Jr.
Ronald J. Kramer Director
- - --------------------------
Ronald J. Kramer
Milton Paulson Director
- - --------------------------
Milton Paulson
James W. Stansberry Director
- - --------------------------
James W. Stansberry
Martin S. Sussman Director
- - --------------------------
Martin S. Sussman
William H. Waldorf Director
- - --------------------------
William H. Waldorf
Lester L. Wolff Director
- - --------------------------
Lester L. Wolff
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, dated November 8, 1994, included in this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8 (Nos. 2-82183,
2-99536, 33-14259, 33-39090 and 33-52319).
Arthur Andersen LLP
Roseland, New Jersey
December 5, 1994
SCHEDULE I
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE I -- MARKETABLE SECURITIES
AS OF SEPTEMBER 30, 1994 AND 1993
Market Value Carrying Value of
of Each Issue at Each Issue in
Cost of Each Issue Balance Sheet Date the Balance Sheet
-------------------------- --------------------------- ---------------------------
1994 1993 1994 1993 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
DESCRIPTION OF MARKETABLE
SECURITIES:
U.S. Government and its
Agencies $20,842,000 $ 8,852,000 $20,431,000 $ 8,852,000 $20,431,000 $ 8,851,000
Municipal obligations 3,366,000 2,246,000 3,364,000 2,246,000 3,364,000 2,244,000
Commercial paper 5,944,000 --- 5,932,000 --- 5,932,000 ---
----------- ----------- ----------- ----------- ----------- -----------
$30,152,000 $11,098,000 $29,727,000 $11,098,000 $29,727,000 $11,095,000
=========== =========== =========== =========== =========== ===========
S-1
SCHEDULE VIII
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
Additions Deductions
------------------------- ----------
Balance at Charged to Charged to Accounts Balance at
Beginning Profit and Other Written End
Description of Period Loss Accounts Off of Period
- - -------------------------------------- ---------- ---------- ------------ ---------- ----------
FOR THE YEAR ENDED SEPTEMBER 30, 1994:
Allowance for doubtful accounts $3,860,000 $805,000 $ 95,000 (1) $1,101,000 $3,659,000
========== ======== ======== ========== ==========
FOR THE YEAR ENDED SEPTEMBER 30, 1993:
Allowance for doubtful accounts $3,913,000 $627,000 $ 38,000 (1) $ 718,000 $3,860,000
========== ======== ======== ========== ==========
FOR THE YEAR ENDED SEPTEMBER 30, 1992:
Allowance for doubtful accounts $2,965,000 $942,000 $173,000 (2) $ 167,000 $3,913,000
========== ======== ======== ========== ==========
(1) Recoveries of amounts previously written off.
(2) Principally related to an acquired company.
S-2
EXHIBIT 10.3
INSTRUMENT SYSTEMS CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN TRUST AGREEMENT
PREAMBLE
Instrument Systems Corporation, a Delaware
corporation, as plan sponsor, and U.S. Trust Company of
California, N.A., as Trustee, by execution of this Trust
Agreement, hereby establish effective as of November 8,
1994, the Instrument Systems Corporation Employee Stock
Ownership Plan Trust for the purpose of holding and
investing assets of and funding benefits under the In-
strument Systems Corporation Employee Stock Ownership
Plan (the "Plan"), which is an employee stock ownership
plan within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended. The Plan and this
Trust Agreement shall be deemed to be and construed as a
single document. However, notwithstanding the immediate-
ly preceding sentence, anything else herein, or any
inference to the contrary contained in the Plan, the
Trustee's rights, powers, titles, duties, responsibili-
ties, discretion, and immunities shall be governed solely
by this Trust Agreement without reference to the provi-
sions of the Plan.
ARTICLE 1
Definitions
1.1 Incorporation of Definitions Used in Plan.
The definitions stated in Article I of the Plan
are hereby incorporated by reference into this Trust
Agreement.
1.2 Definitions of Terms Used Exclusively
In Trust Agreement
(a) "Bank" means (1) a banking institution
organized under the laws of the United States; (2) a
member bank of the Federal Reserve System; or (3) any
other banking institution, whether or not incorporated,
doing business under the laws of any state or the United
States, a substantial portion of the business of which
consists of receiving deposits or exercising fiduciary
powers similar to those permitted to national banks under
the authority of the Comptroller of the Currency, and
which is supervised and examined by state or federal
authority having supervision over banks.
(b) "Fiduciary" means a person or organization
that is a fiduciary with respect to the Plan or the Trust
Fund within the meaning of ERISA Section 3(21).
1.3 Named Fiduciaries
The members of the Committee, collectively and
individually, shall be the named fiduciaries of the trust
for purposes of Section 402 of ERISA, except that, to the
extent, if any, permitted by ERISA, each Member and
Beneficiary also shall be a named fiduciary with respect
to the exercise of voting and tender or exchange offer
rights for Employer Securities held in such Member's
Account.
ARTICLE 2
Establishment of Trust and Certain
Primary Conditions of its Operation
2.1 Establishment of Trust
This Trust Agreement establishes an employees'
trust pursuant to the Plan that is intended to be a tax-
exempt organization under Code Section 501(a). The
Company and the Trustee hereby agree that the Trust Fund
shall be held in trust and administered, invested and
distributed for the benefit of Members and their Benefi-
ciaries under the terms and conditions of this Trust
Agreement.
2.2 Designation of Trust
The employees' trust established hereunder
shall be known as the Instrument Systems Corporation
Employee Stock Ownership Plan Trust.
2.3 Trust Fund
The Trust Fund shall consist of the cash,
Employer Securities and other property, if any, held by
the Trustee which shall represent at any time the total
of the Employer Securities acquired by the Trustee and
the contributions made by the Employer to the Trust Fund
under the provisions of the Plan, plus the earnings and
less the losses thereupon, without distinction which at
the time of reference have been made by the Trustee as
authorized herein. Unless otherwise directed by the
Committee, the Trustee shall hold, invest, and administer
the Trust assets as a single fund without identification
of any part of the Trust assets to the Company or to any
Member or group of Members or their Beneficiaries. The
Trustee need not inquire into the source of any money or
property transferred to it nor into the authority or
right of the transfer or of such money or property to
transfer or such money or property to the Trustee.
2.4 Exclusive Benefit Rule
The employees' trust established by this Trust
Agreement is expressly declared to be irrevocable, sub-
ject to the provisions of Article 8. It shall be impos-
sible, at any time prior to the satisfaction of all
liabilities with respect to Members and their Beneficia-
ries, for any part of the principal or income of the
Trust Fund to be used for, or diverted to, any purpose
which is not for the exclusive benefit of Members and
their Beneficiaries. The preceding sentence shall not be
construed in such a way as to prohibit the use of assets
of the Trust Fund to pay fees and other expenses and
obligations (including without limitation obligations of
the Trustee under an Acquisition Loan) incurred in the
maintenance, administration and investment of the Trust
Fund in accordance with the provisions of this Trust
Agreement.
2.5 Reversion Prohibited
Except as permitted in Section 2.4 or Article
10 of the Trust Agreement, it shall be impossible for any
part of the Trust Fund to revert to the Company or any
Member Company.
2.6 Claims against the Trust Fund
Subject to the claims procedure provided under
the Plan, the Committee shall have complete control and
authority to determine the existence, nonexistence,
nature and amount of the rights and interests of all
persons in or to the Trust Fund or under the Plan.
Except as otherwise required by ERISA, the Trustee shall
have no duty to question or to examine any determination
made by the Committee or direction given by the Committee
to the Trustee in respect of such matters.
2.7 Employer Contributions
Employer contributions to the Trust Fund shall
consist only of cash, Employer Securities or other prop-
erty acceptable to the Trustee. The Trustee shall have
no duty to administer the Plan nor to determine that the
contributions received from the Employer complies with
the provisions of the Plan or any Acquisition Loan, or
that the assets of the Trust are adequate to provide any
benefit payable pursuant to the Plan or are adequate to
make the payments under any Acquisition Loan. The Trust-
ee shall not be obligated to collect any contributions
from the Employer, nor be obligated to see that funds
deposited with it are deposited according to the provi-
sions of the Plan.
2.8 Distributions
Payments shall be made from the Trust Fund by
the Trustee to such persons, in such manner, at such
times, and in such amounts as the Committee shall from
time to time direct in writing; provided, however, that
the Trustee may withhold compliance with the Committee's
direction to the extent that, and so long as, the Trustee
shall deem such withholding necessary to insure payment
of the Trustee's fees and expenses or to protect the
Trustee against liability for taxes or any other liabili-
ty. The Trustee shall not be liable for any distribution
made or acts done by it pursuant to written directions of
the Committee. Neither shall the Trustee be obligated to
inquire as to whether any payee or distributee is enti-
tled to any payment or distribution. Rather, any payment
or distribution made by the Trustee on the order or
direction of the Committee shall operate as a complete
discharge of all obligations of the Trustee with respect
thereto.
ARTICLE 3
Investment of the Trust Fund
3.1 General Responsibility and Authority
for Investment of Trust Fund Assets
The assets of the Trust Fund shall be invested
and reinvested by the Trustee, subject to and in accor-
dance with the provisions of this Trust Agreement.
3.2 ERISA Requirements
(a) In investing and managing the assets of
the Trust Fund, the Fiduciary who has investment respon-
sibility and authority shall exercise the care, skill,
prudence and diligence, under the circumstances then
prevailing, which prudent men, acting in like capacity
and familiar with such matters, would use in the conduct
of an enterprise of like character and with like aims.
(b) Except as authorized by regulations pro-
mulgated by the Department of Labor, no Fiduciary may
maintain the indicia of ownership of any assets of the
Trust Fund outside the jurisdiction of the district
courts of the United States.
(c) In investing and managing the assets of
the Trust Fund, the Fiduciary shall take into consider-
ation the funding policy of the Plan.
(d) Notwithstanding any other provision of the
Trust Agreement, the Trustee shall not be required to
comply with any provisions of the Trust Agreement that is
not consistent with the requirements of Title I of ERISA.
In the event a court of competent jurisdiction shall
issue an opinion or order to the Plan, the Company or the
Trustee, which shall, in the opinion of counsel to the
Company or the Trustee, invalidate under ERISA, in all
circumstances or in any particular circumstances, any
provision or provisions of this Trust Agreement, then,
upon notice thereof to the Company or to the Trustee, as
the case may be, such invalid or conflicting provisions
of this Trust Agreement shall be given no further force
or effect.
3.3 Investment in Employer Securities
The primary purpose of the Plan is to acquire
an ownership interest in the Company either from the
Company or its shareholders and to provide deferred
compensation benefits to Members and Beneficiaries in the
form of shares of Employer Securities. Accordingly, the
Plan has been established to provide for investment
primarily in shares of Employer Securities. In further-
ance of the purpose for which the Plan has been estab-
lished and designed, the Trustee shall, in accordance
with the terms of the Plan, (a) acquire shares of Employ-
er Securities with assets of the Trust Fund or with the
proceeds of an Acquisition Loan, (b) hold unallocated
shares of Employer Securities which have been acquired
with the proceeds of an Acquisition Loan in a Loan Sus-
pense Account for release and allocation to the Accounts
of Members, (c) hold shares of Employer Securities which
have been contributed by the Employer and (d) distribute
to Members or their Beneficiaries under the terms of the
Plan all shares of Employer Securities and other assets
which have been allocated to the Accounts of such Members
pursuant to the terms of the Plan in accordance with the
terms of the Plan, notwithstanding any otherwise applica-
ble fiduciary standard relating to (i) diversification of
Trust Fund assets, (ii) the speculative character of
Trust Fund investments, (iii) the lack or inadequacy of
income provided by Trust Fund assets, or (iv) the proba-
ble continual fluctuation in the fair market value of
Trust Fund assets. Subject to the provisions of the
Plan, the Trustee is expressly authorized, in accordance
with the terms of the Plan, to hold 100% of the assets of
the Trust Fund in shares of Employer Securities.
The Trustee may purchase Employer Securities
for the Trust Fund, as directed by the Committee, either
(a) directly or indirectly from the Company or any share-
holder of the Company, including any person deemed to be
a "party in interest" within the meaning of ERISA Section
3(14) or a "disqualified person" within the meaning of
Code Section 4975 or (b) through "blind" transactions on
a national securities exchange in which neither the
purchaser nor the seller knows the identity of the other
party to the transaction. In purchasing any securities
on a national securities exchange, the Trustee shall give
due consideration to the trading volume, if any, of Em-
ployer Securities at the time of each purchase and ac-
cordingly regulate the amount and timing of such purchas-
es so as to minimize the effect on market price fluctua-
tions which may be caused by such purchases. The Trustee
shall comply with all federal and state securities laws
and with all applicable provisions of ERISA when purchas-
ing Employer Securities, including, if required, the
condition that no more than adequate consideration (as
defined in Section 3(18) of ERISA) be paid for such
Stock, and no commission be charged when a purchase of
Employer Securities is made from a "party in interest" or
a "disqualified person."
In the event that the Trustee purchases or
sells shares of Employer Securities from or to a "party
in interest" or a "disqualified person," the terms of
such purchase or sale shall provide that in the event
that there is a final determination by the Internal
Revenue Service, Department of Labor or court of compe-
tent jurisdiction that the Trustee paid more than "ade-
quate consideration" (as defined in ERISA Section 3(18))
to the seller or received less than adequate consider-
ation from the purchaser for such shares of Employer
Securities as of the date of purchase or sale, the seller
or purchaser, as the case may be, shall be required to
pay to the Trustee an amount in cash equal to the differ-
ence between the purchase or sale price and the amount
determined to be adequate consideration plus interest at
a reasonable rate from the date of purchase or sale to
the date of payment.
The Trustee may enter into an Acquisition Loan,
the proceeds of which must be used within a reasonable
time after their receipt by the Trustee to acquire shares
of Employer Securities and/or repay a prior Acquisition
Loan; provided, however, that the terms and conditions of
the Acquisition Loan together with any other documents
executed by the Trustee in connection therewith (includ-
ing without limitation any security or guarantee agree-
ments) shall be subject to the following provisions:
(a) The Acquisition Loan must be primarily for
the benefit of the Plan Members and their Beneficiaries.
The terms of the Acquisition Loan, whether or not between
independent parties, must, at the time the loan is made,
be at least as favorable to the Plan as the terms of a
comparable loan resulting from arms'-length negotiations
between independent parties. The loan must for a specif-
ic term and must not be payable at the demand of any
person, except in the case of default.
(b) The Acquisition Loan shall bear no more
than a reasonable rate of interest.
(c) Any collateral pledged to the creditor
shall consist only of the shares of Employer Securities
acquired with the proceeds of such Acquisition Loan or
shares of Employer Securities that were pledged as col-
lateral in connection with a prior Acquisition Loan of
the Trustee that was repaid with the proceeds of the
current Acquisition Loan, provided, however, that the
Company may guarantee repayment of the Acquisition Loan.
(d) Under the terms of the Acquisition Loan or
other documents executed by the Trustee in connection
therewith, the creditor shall not have recourse against
the assets of the Trust Fund except that an Acquisition
Loan may permit recourse with respect to (1) the collat-
eral pledged as security for the Acquisition Loan,
(2) contributions (other than contributions of Employer
Securities) that are made to meet the Trustee's obliga-
tions under the Acquisition Loan, and (3) earnings at-
tributable to such collateral and the investment of such
contributions.
(e) The Acquisition Loan or any security
agreements executed by the Trustee in connection there-
with shall provide for the release of shares of Employer
Securities from encumbrance in a manner permitted by
Treasury Regulations under Code Section 4975(e)(7).
(f) The Acquisition Loan or any security
agreements executed by the Trustee in connection there-
with shall provide that in the event of default under
such Acquisition Loan, the value of the Plan Assets, if
any, transferred in satisfaction of such obligation must
not exceed the amount of such default, and if the lender
is a "disqualified person," the Acquisition Loan must
provide for the transfer of Plan assets only upon and to
the extent of the failure of the Trustee to meet the
payment schedule of the Acquisition Loan. For purposes
of this paragraph (f), the preceding sentence shall not
apply solely because a guarantor is a disqualified per-
son.
(g) Payments made by the Trustee from the
Trust Fund with respect to an Acquisition Loan during a
Plan Year shall not exceed the sum of (1) contributions
(other than contributions of shares of Employer Securi-
ties) made to the Trust Fund for the Plan Year and each
prior Plan Year to meet its obligations under such Acqui-
sition Loan and the earnings attributable to the invest-
ment of such contributions and (2) earnings attributable
to allocated and unallocated shares of Employer Securi-
ties purchased with such Acquisition Loan, reduced by
(3) payments made under such Acquisition Loan in prior
Plan Years, and increased by (4) the proceeds of any sale
of Employer Securities held in the Suspense Account.
Such contributions and earnings must be accounted for
separately in the books of account of the Trustee until
the Acquisition Loan is repaid. Notwithstanding the
foregoing, if at the date of termination of the Plan, the
Trustee remains indebted under any Acquisition Loan, the
Committee may instruct the Trustee, prior to making the
final Plan allocations, to pay accrued interest and
principal and to prepay the remaining principal balance
of the Acquisition Loan with shares of Employer Securi-
ties held in the Suspense Account or with the proceeds of
a sale or other disposition of such Employer Securities.
If any assets remain in the Suspense Account after all
Acquisition Loans have been fully discharged, such assets
will be allocated as income of the Trust Fund for the
Plan Year in which the Plan terminates.
(h) Except as provided in the Plan or as
otherwise required by applicable law, no shares of Em-
ployer Securities acquired with the proceeds of an Acqui-
sition Loan shall be subject to a put, call, right of
first refusal or other option or buy-sell or similar
arrangement, while such Stock is held by or when distrib-
uted from the Plan, whether or not the Acquisition Loan
is repaid or the Plan is then an employee stock ownership
plan (as defined by Section 4975(e)(7) of the Code). To
the extent required by Treasury Regulation Section
54.4975-11(a)(3)(ii), the restrictions of this paragraph
(h) shall be nonterminable.
ARTICLE 4
Powers of the Trustee
4.1 Scope of Powers
The Trustee has whatever powers are required to
discharge its obligations and exercise its rights under
this Trust Agreement, without being limited by any state
statute or rule of law regarding investments by trustees,
including (but not limited to) the powers specified in
the following Section of this Article, and the powers and
authority granted to the Trustee under other provisions
of this Trust Agreement. The enumeration of any power
herein shall not be by way of limitation, but shall be
cumulative and construed as full and complete power in
favor of the Trustee.
4.2 Powers of the Trustee
In furtherance of the purposes of the Plan and
the Trust, the Trustee is authorized and empowered to
exercise the following powers in its sole discretion:
(a) To invest and reinvest the Trust assets
without distinction between the principal and income in
Employer Securities. To the extent Trust assets are not
invested in Employer Securities, such assets shall be
invested in such shares and obligations of corporations
or of unincorporated associations or trusts or investment
companies or in any kind of investment fund, mutual fund
(open and/or otherwise), or common trust fund, or in any
other realty or personalty or any other kind of invest-
ment, without regard to whether or not such investment is
an authorized or appropriate investment for trustees
under the state laws applicable hereto. The Trustee may
invest part or all of the Trust in any common fund estab-
lished and maintained by the Trustee for the collective
investment of assets in employee benefit trusts which
qualify under Section 401(a) of the Internal Revenue
Code, as amended.
(b) Except as provided in Section 4.3, to
sell, mortgage, pledge, lease or otherwise dispose of any
securities or other property in the Trust at public or
private sale.
(c) To register any investment held in the
Trust Fund in its own name or in the name of a nominee,
with or without the addition of words indicating that
such securities are held in a fiduciary capacity, and to
hold any investment in bearer form, and to deposit any
investment in a depositary or clearing corporation, but
the books and records of the Trustee shall show that all
such investments are part of the Trust Fund.
(d) Notwithstanding any other provisions of
this Agreement, to enter into an Acquisition Loan and use
the proceeds of such loan to purchase Employer Securi-
ties.
(e) To determine, for all purposes of the
Plan, the market value of any securities or other proper-
ty held by the Trustee in the Trust and, where any secu-
rities or other property are determined by the Trustee
not to be publicly traded, to determine their value in
accordance with sound practice and standards for evaluat-
ing such property; subject, however, in the case of
Employer Securities held in the Trust that is not public-
ly traded within the meaning of Code Section 401(a)(28),
to any valuation of such Employer Securities rendered by
an independent appraiser selected by the Trustee with the
approval of the Company.
(f) To employ suitable agents, including such
public accountants, brokers, custodians, ancillary trust-
ees, and appraisers as shall be necessary and appropri-
ate, and to employ counsel (which may be counsel for the
Committee or the Company), and to pay their reasonable
expenses and compensation. The written opinion of such
counsel shall be full and complete protection of the
Trustee in respect to any action taken or suffered by the
Trustee hereunder in good faith reliance on said opinion.
(g) Other than with respect to payments re-
quired under an Acquisition Loan and except as otherwise
provided in Section 4.3, to sell, exchange, convey,
transfer or otherwise dispose of shares of Employer
Securities.
(h) To make commitments either alone or in
concert with others to purchase at any future date any
property, investments or securities authorized by Section
4.2(a) of this Agreement.
(i) Except as provided in Section 4.2(d), to
borrow funds from any lender other than the Trustee
(including the Employer) to finance the acquisition of
Employer Securities, provided however, that any evidence
of indebtedness to any "party in interest" or "disquali-
fied person" or to any other lender which is guaranteed
by a "party in interest" or "disqualified person" shall
be an Acquisition Loan subject to the provisions of
Section 3.3.
(j) To accept, compromise or otherwise settle
any obligations or liability due to or from it as Trustee
hereunder, including any claim that may be asserted for
taxes under present or future laws, or to enforce or
contest the same by appropriate legal proceedings.
(k) Except as otherwise provided in Section
4.3, to vote Employer Securities held in the Trust Fund
and to exercise any other rights or privileges associated
with such Stock in accordance with the terms of the Plan.
(l) To exercise, generally, any of the powers
which an individual owner might exercise in connection
with property, either real or personal, held by the Trust
Fund, and to do all other acts that the Trustee may deem
necessary or proper to carry out any powers set forth in
this Section 4.2 or which are otherwise in the best
interests of the Trust Fund.
4.3 Voting Employer Securities and Tendering Employer
Securities
Except as otherwise required by ERISA or regu-
lations thereunder, or the Code or regulations thereun-
der, all voting rights of shares held by the Trust Fund,
and all rights to sell or otherwise tender shares held by
the Trust Fund, shall be exercised by the Trustee in
accordance with the provisions of the Plan. Anything in
this Trust Agreement or in the Plan to the contrary
notwithstanding, proceeds of any unallocated Employer
Securities tendered by the Trustee shall be reinvested in
Employer Securities.
4.4 Documents, Instruments and Facilities
(a) In order to effectuate the specific powers
and authority herein granted to the Trustee, the Trustee
may make, execute, acknowledge and deliver any and all
documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate.
(b) The Trustee may use its own facilities in
effecting any transaction involving assets of the Trust
Fund, unless such use is prohibited by ERISA Section 406.
ARTICLE 5
Duties and Obligations of the Trustee
5.1 Scope of Duties and Obligations
The Trustee agrees to perform the duties and
obligations imposed by this Trust Agreement. No duties
or obligations shall be imposed upon the Trustee with
respect to the Trust Fund unless undertaken by the Trust-
ee under the express terms of this Trust Agreement or
unless imposed upon the Trustee by statute or at common
law. The Trustee shall have no duty or obligation to
advise Members or Beneficiaries as to the effect of
federal or state securities laws on the Plan, the Trust
Fund or any distributions therefrom.
5.2 General Duties and Obligations
(a) The Trustee shall hold all property re-
ceived by it and any income and gains thereupon. The
Trustee shall manage, invest and reinvest the Trust Fund,
shall collect the income therefrom, and shall make pay-
ments as provided in the Plan and in this Trust Agree-
ment. The Trustee may utilize depositories to hold
assets of the Trust Fund, provided however that the
Trustee shall not be relieved of any fiduciary responsi-
bility with respect to the assets so held.
(b) The Trustee is responsible only for money
or assets that it actually receives. The Trustee has no
duty to compute amounts to be paid to it by the Employer
or to enforce collection of any contribution due from the
Employer. The Trustee is not responsible for the cor-
rectness of the computation of the amount of any contri-
bution made or to be made by the Employer.
(c) The Trustee shall make payments and dis-
bursements from the Trust Fund in accordance with Section
2.8 of the Trust Agreement.
(d) Subject to the provisions of Section
8.2(c), the Trustee shall comply with any directive
issued by the Board or the Committee to withdraw and
transfer all or any part of the Trust Fund to another
trustee or another successor funding agent.
5.3 Valuation
(a) The Trustee shall determine, and report to
the Committee, the current fair market value of the
assets and liabilities of the Trust Fund, and Members'
and Beneficiaries' interests therein, as of the regular
Valuation Date and as of any interim Valuation Date that
may be fixed by the Committee.
(b) The fair market value of assets of the
Trust Fund shall be determined by the Trustee on the
basis of such sources of information as it may deem
reliable, including (but not limited to) information
reported in: (1) newspapers of general circulation,
(2) standard financial periodicals or publications,
(3) statistical and valuation services, (4) records of
securities exchanges, (5) reports of any brokerage firm
deemed reliable by the Trustee, or (b) any combination of
the foregoing. If the Trustee is unable to value assets
from such sources, it may rely on information from the
Employer, the Committee, appraiser or other sources, and
will not be liable for an inaccurate valuation based in
good faith on such information. Notwithstanding the
foregoing, the fair market value of shares of Employer
Securities shall be (i) if the Stock is readily tradeable
on an established securities market, the fair market
value of such stock on such market on the Valuation Date
or (ii) if the Stock is not readily tradeable on an
established securities market, the fair market value
determined in good faith by the Trustee based upon an
appraisal by an independent appraiser meeting requirement
similar to the requirements of Code Section 170(a)(1).
(c) Reasonable costs incurred in valuing the
Trust Fund that are not paid by the Company shall be a
charge against the Trust Fund.
5.4 Records
The Trustee shall keep complete accounts of all
investments, receipts and disbursements, other transac-
tions hereunder, and gains and losses resulting from
same. Such accounts shall be sufficiently detailed to
meet the Trustee's duties of reporting and disclosure
required under applicable federal or state law as shall
exist from time to time. All accounts, books, contracts
and records relating to the Trust Fund shall be open to
inspection and audit at all reasonable times by any
person designated by the Committee.
5.5 Reports
(a) Within 90 days following the close of each
Plan Year, and as otherwise directed by the Committee,
and within 90 days following the Trustee's resignation or
removal under Article 7 of this Trust Agreement, the
Trustee shall furnish the Committee with a written report
setting forth the transactions effected by the Trustee
during the period since it last furnished such a report
and any gains or losses resulting from same, any payments
or disbursements made by the Trustee during such period,
the assets of the Trust Fund as of the last day of such
period (as cost and at fair market value), and any other
information about the Trust Fund that the Committee may
reasonably request. The Trustee shall certify the accu-
racy of the report if such certification is required by
any applicable federal or state law or regulation.
(b) Each report submitted pursuant to subSec-
tion (a) shall be promptly examined by the Committee. If
the Committee approves of such report, the Trustee shall
be forever released from any liability of accountability
with respect to the propriety of any of its accounts or
transactions so reported, as if such account had been
settled by judgment or decree of a court of competent
jurisdiction in which the Trustee, the Committee, the
Company, and all persons having or claiming any interest
in the Trust Fund were made parties. The foregoing,
however, is not to be construed to deprive the Trustee of
the right to have its account judicially settled if it so
desires.
(c) The Committee may approve of any report
furnished by the Trustee under subSection (a) either by
written statement of approval furnished to the Trustee or
shall be deemed to have approved of any such report by
failure to file a written objection to the report with
the Trustee within 90 days of the date on which the
Committee receives such report. The Committee shall not
be liable to any person for its approval, disapproval or
failure to approve any such report rendered by the Trust-
ee.
5.6 Instructions
All communications required hereunder from the
Company or the Committee to the Trustee shall be in
writing signed by an officer of the Company or by a
member of the Committee authorized to sign on its behalf.
The Committee may authorize one or more of its members to
sign on its behalf all communications required hereunder
between the Committee and the Trustee. At all times
during which communications between the Committee and the
Trustee are required hereunder, the Company and the
Committee shall keep the Trustee advised of the names and
specimen signatures of all members of the Committee and
the individuals authorized to sign on behalf of the
Committee. In the absence of any notification of chang-
es, the Trustee may assume that the members of the Com-
mittee are the same as last reported by the Company to
the Trustee.
5.7 Hiring of Agents and Related Expenses
The Trustee may employ suitable agents and
counsel who may be agents or counsel for the Employer.
The reasonable expenses incurred by the Trustee and the
Committee in hiring such agents or counsel or otherwise
in the performance of their duties hereunder and all
other charges, expenses, disbursements and compensation
of the Trustee or the Committee shall be paid from the
Trust Fund, unless the Employer pays such charges, ex-
penses, disbursements and compensation directly. In
addition, the Employer in its discretion may reimburse
the Trust Fund for any such charges, expenses, disburse-
ments and compensation paid from the Trust Fund.
ARTICLE 6
Compensation, Rights and Indemnities of the Trustee
6.1 Compensation and Reimbursement
(a) The Trustee shall receive for its services
reasonable compensation as agreed upon in writing from
time to time between the Company and the Trustee.
(b) The Trustee shall be reimbursed for all
reasonable expenses it incurs in the performance of its
duties under this Trust Agreement. In this regard,
reasonable expenses include (but are not limited to)
accounting, consulting, appraisal, brokerage, custodial,
actuarial and, subject to Section 6.3, legal fees for
professional services related to the administration of
the Plan and this Trust Agreement.
(c) Compensation and expenses payable under
this Section 6.1 shall be paid from the Trust Fund (and
may be charged, if applicable, to an appropriate subac-
count or subtrust), unless the Employer pays such compen-
sation and expenses directly. In addition, the Employer
in its discretion may reimburse the Trust Fund for any
such compensation and expenses paid from the Trust Fund.
6.2 Rights of the Trustee
(a) Whenever in the administration of the Plan
a certification or direction is required to be given to
the Trustee, or the Trustee deems it necessary that a
matter be proved prior to taking, suffering or omitting
any action hereunder, such certification or direction
shall be fully made, or such matter may be deemed to be
conclusively proved, by delivery to the Trustee of an
instrument signed either:
(1) in the name of the Company by an
officer of the Company; or
(2) unless the matter concerns the au-
thority of the Committee, in the name of the Committee by
the Chairman or Secretary of the Committee;
and the Trustee may fully rely upon such instrument to
the extent permitted by law. Notwithstanding the forego-
ing, the Trustee may in its sole discretion accept such
other evidence of a matter or require such further evi-
dence as may seem reasonable to it, in lieu of such
instrument. Generally, the Trustee shall be protected in
acting upon any notice, resolution, order, certificate,
opinion, telegram, letter or other document believed by
the Trustee to be genuine and to have been signed by the
proper party or parties, and may act thereon without
notice to a Member or Beneficiary and without considering
the rights of any Member or Beneficiary.
(b) The Trustee may make any payment which it
is required to make hereunder by mailing a check for the
amount of such payment and any other necessary papers by
first class mail in a sealed envelope addressed to the
person to whom such payment is to be made, according to
the certification of the Committee. In this respect, the
Trustee shall recognize only instructions given to it by
the Committee and has the right to act thereon without
notice to any person and without considering the rights
of any Member or Beneficiary. The Trustee is not re-
quired to determine or to make any investigation to
determine, the identity or mailing address of any person
entitled to benefits under the Plan, and is entitled to
withhold payment of benefits or directions to issuing
companies with respect to such payment until the identity
and mailing address of the Member or Beneficiary entitled
to receive such benefits is certified by the Committee.
The Trustee shall not be responsible for the determina-
tion or computation of any benefit due to a Member or
Beneficiary.
(c) In the event that any dispute arises as to
the identity or rights of any person or persons to whom
the Trustee is to make payment or delivery of any funds
or property, the Trustee may withhold payment or delivery
of such funds or property without liability until the
dispute is resolved by arbitration, adjudicated by a
court of competent jurisdiction, or settled by written
stipulation of the parties concerned. The Trustee shall
not be liable for the payment of and interest or income
on the cash or other property held by it under such
circumstances. The Trustee, at its discretion, may bring
any action in the nature of an interpleader, but shall
not be obligated to do so.
(d) The Trustee may consult with legal counsel
(who may be counsel for the Committee, the Company or a
Member Company) with respect to the construction of the
Plan or this Trust Agreement or its duties thereunder, or
with respect to any legal proceeding or any question of
law, and shall be fully protected (to the extent permit-
ted by law) with respect to any action it takes or omits
in good faith upon the advice of such counsel.
(e) The Trustee shall be provided with speci-
men signatures of the current members of the Committee.
The Trustee shall be entitled to rely in good faith upon
any directions signed by a majority of the members of the
Committee or their appointed delegate, and shall incur no
liability for following such directions.
(f) The Trustee may accept communications by
photostatic teletransmissions with duplicate or facsimile
signatures as a delivery of such communications in writ-
ing until notified in writing by the Committee that the
use of such devices is not longer authorized.
(g) Until advised to the contrary by the
Company, the Trustee shall assume that the Trust is
exempt from all Federal, State, and local income taxes,
and may act in accordance with that assumption. If the
whole or any part of the Trust Fund, or the proceeds
thereof, becomes liable for the payment of any estate,
inheritance, income or other tax, charge or assessment
which the Trustee is required to pay, the Trustee shall
have full power and authority to pay such tax, charge or
assessment out of any money or other property in its hand
for the account of the person whose interests hereunder
are so liable, but at least 10 days prior to the making
of any such payment the trustee must mail notice to the
Committee of its intention to make such payment. Prior
to making any transfers or distributions of any of the
proceeds of the Trust Fund, the Trustee may require such
releases or other documents from any lawful taxing au-
thority and may require such indemnity from any payee or
distributee, as it deems necessary.
6.3 Indemnification
(a) The Company shall indemnify and hold
harmless the Trustee from all loss or liability (includ-
ing expenses and reasonable attorneys' fees) to which the
Trustee may be subject by reason of its execution of its
duties under this Trust Agreement, or by reason of any
acts taken in good faith in accordance with directions,
or acts omitted in good faith due to absence of direc-
tions, from the Committee unless such loss or liability
is due to the Trustee's negligence or willful misconduct.
The Trustee is entitled to collect on the indemnity
provided by this Section 6.3 only from the Employer, and
is not entitled to any direct or indirect indemnity
payment from assets of the Trust Fund. For purposes of
Section 6, negligence shall be defined as acts or omis-
sions that constitute a material departure from standards
of ordinary care.
(b) In the event that the Trustee is named as
a defendant in a lawsuit or proceeding involving the Plan
or the Trust Fund, the Trustee shall be entitled to
receive on a current basis the indemnity payments provid-
ed for in this Section. If, however, the final judgment
entered in the lawsuit or proceeding holds that the
Trustee is guilty of negligence or willful misconduct
with respect to one or more counts alleged against it,
the Trustee shall refund the portion of the indemnity
payments that are reasonably allocable to the defense of
those counts with respect to which the Trustee has been
found to have committed acts of negligence or willful
misconduct.
6.4 Limitation of Liability of Trustee
(a) If the Trustee makes a written request for
directions from the Committee, the Trustee may await such
directions without incurring liability. The Trustee has
no duty to act in the absence of such requested direc-
tions, but may in its discretion take such action as it
deems appropriate to carry out the purposes of this Trust
Agreement, without liability therefor.
(b) The Trustee is not responsible for deter-
mining the adequacy of the Trust Fund to meet liabilities
under the Plan, and is not liable for any obligations of
the Plan or the Trust Fund in excess of the assets of the
Trust Fund.
(c) The Trustee shall not be liable for the
acts or omissions of any other fiduciary or person with
respect to the Plan or the trust Fund except to the
extent required under Section 405(a) of ERISA.
(d) The Trustee is not responsible for any
matter affecting the administration of the Plan by the
Company, the Committee, or any other person or persons to
whom responsibility for administration of the Plan is
delegated pursuant to the terms of the Plan.
6.5 Court Proceedings and Necessary
Parties to Legal Actions
The Trustee may institute, maintain or defend
any litigation necessary in connection with the adminis-
tration of the Trust fund, provided, the Trustee shall be
under no duty or obligation to do so unless it shall have
been indemnified to its satisfaction against all expenses
and liabilities which it may sustain or reasonably antic-
ipate by reason thereof. All costs and expenses of
litigation for which the Trustee would be liable shall be
paid by the Company, or if not paid by the Company, from
the Trust Fund. Except as required by ERISA Section
502(h), only the Employer, the Committee and the Trustee
shall be considered necessary parties in any legal action
or proceeding with respect to the Trust Fund, and no
Member, Beneficiary or other person having an interest in
the Trust Fund shall be entitled to notice. Any judgment
entered on any such action or proceeding shall be binding
on the Employer, Committee, Trustee and all persons
claiming under the Trust. Nothing in this Section 6.5 is
intended to preclude a Member or Beneficiary from enforc-
ing his legal rights.
6.6 Bonding of Trustee
The Trustee shall not be required to furnish
any bond or security for the performance of its powers
and duties hereunder, unless irrespective of this provi-
sion, the Trustee is required to do by State or Federal
statute or regulation.
6.7 Third Party
No person dealing with the Trustee shall be
obligated to see to the proper application of any money
paid or property delivered to the Trustee, or to inquire
whether the Trustee has acted pursuant to any of the
terms of the Plan or Trust. Each person dealing with the
Trustee may act upon any notice, request, or representa-
tion in writing by the Trustee, or by the Trustee's duly
authorized agent, and shall not be liable to any person
whomsoever in so doing. The certificate of the Trustee
that it is acting in accordance with the Plan or Trust
shall be conclusive in favor of any person relying on the
certificate.
6.8 Tax and Information Returns
The Company shall be responsible for timely
filing all tax and information returns, as well as all
required descriptions, reports, and disclosures, relating
to the Plan and Trust.
ARTICLE 7
Resignation or Removal of the Trustee
7.1 Resignation
The Trustee may resign at any time by deliver-
ing to the Board of Directors or the Committee a written
notice of resignation, to take effect not less than 60
days after delivery, unless such notice is waived.
7.2 Removal
The Board of Directors or the Committee may
remove the Trustee at any time by delivering to the
Trustee, not less than 60 days before it is to take
effect, a written notice of removal (unless such notice
is waived by the Trustee).
7.3 Successor Trustee
Upon the resignation or removal of the Trustee,
the Board of Directors or the Committee shall appoint a
successor Trustee, which may accept such appointment by
execution of this Trust Agreement. In the event that no
successor Trustee is appointed, the Trustee may apply to
a court of competent jurisdiction for the appointment of
a successor Trustee or for instructions. Any expenses
incurred by the Trustee in connection with said applica-
tion shall be paid from the Trust Fund as an expense of
administration.
7.4 Settlement
The Trustee shall have the right to have a
final settlement of the accounts of the Trust by judicial
settlement in an action instituted by the Trustee in a
court of competent jurisdiction.
7.5 Transfer to Successor Trustee
Upon settlement of the Trustee's account, the
Trustee shall transfer to the successor Trustee the Trust
Fund as it is then constituted and true copies of its
records relating to the Trust Fund. Upon the completion
of this transfer, the Trustee's responsibilities under
this Trust Agreement shall cease and the Trustee shall be
discharged from further accountability for all matters
embraced in its settlement; provided, however, that the
Trustee executes and delivers all documents and written
instruments which are necessary to transfer and convey
the right, title and interest in the Trust Fund assets,
and all rights and privileges with respect to such as-
sets, to the successor Trustee. Notwithstanding the
foregoing, the Trustee is authorized to reserve such
amount as it may deem advisable for payment of its fees
and expenses in connection with the settlement of its
account. Any balance of such reserve remaining after the
payment of such fees and expenses shall be paid over to
the successor Trustee. Notwithstanding any provision of
Trust Agreement to the contrary, the Trustee may invest
and reinvest such reserves in any investment or invest-
ment vehicle appropriate for the temporary investment of
cash reserves of trust.
7.6 Duties of the Trustee Prior to
Transfer to Successor Trustee
The Trustee's powers, duties, rights and re-
sponsibilities under this Trust Agreement shall continue
until the date on which the transfer of the Trust Fund
assets and delivery of the related documents to the
successor Trustee under Section 7.5 is completed. Noth-
ing contained herein shall relieve the Trustee of its
duties under Section 5.5. The successor Trustee shall
neither be liable or responsible for any act or omission
to act with respect to the operation or administration of
the Trust Fund under this Trust Agreement prior to such
date, nor be under any duty or obligation to audit or
otherwise inquire into or take any action concerning the
acts or omissions of the Trustee or any predecessor
Trustee.
7.7 Powers, Duties and Rights of the Successor
Trustee
Upon its receipt of all the assets of the Trust
Fund and all of the documents related thereto, the suc-
cessor Trustee shall become vested with all the estate,
powers, duties, rights and discretion of the Trustee
under this Trust Agreement with the same effect as though
the successor Trustee were originally named as Trustee
hereunder.
7.8 Merger or Consolidation Involving Corporate
Trustee
Any corporation into which a corporation acting
as Trustee hereunder may be merged or with which it may
be consolidated, or any corporation resulting from any
merger, reorganization or consolidation to which such
Trustee may be a party, shall be the successor of the
Trustee hereunder without the necessity of any appoint-
ment or other action, provided it does not resign and is
not removed.
ARTICLE 8
Amendment of the Trust Agreement
or Termination of the Plan
8.1 Amendment of the Trust Agreement
(a) The Company reserves the right to amend
this Trust Agreement in the manner set forth in subSec-
tion (b) at any time and to any extent that it may deem
advisable or appropriate, provided, however, that:
(1) No amendment may affect the duties,
rights, responsibilities or liabilities of the Trustee
without its written consent;
(2) No amendment may have the effect of
vesting in the Company or Member Company any interest in
or control over any property subject to the terms of this
Trust Agreement; and
(3) No amendment may contravene the
provisions of Section 2.4.
(b) Any amendment to this Trust Agreement
shall be made only pursuant to action of the Board of
Directors. A certified copy of the resolution adopting
any amendment and a copy of the adopted amendment as
executed by the Company shall be delivered to the Trust-
ee. Upon such action by the Company, the Trust Agreement
shall be deemed amended as of the date specified as the
effective date by such action or in the instrument of the
amendment. The effective date of any amendment may be
before, on or after the date of such action.
(c) Unless an amendment expressly provides
otherwise, all Member Companies shall be bound by any
amendment adopted pursuant to this Article 8.
8.2 Termination of the Plan
(a) In the event that the Plan is terminated,
the Committee shall notify the Trustee as to whether the
Trust Fund is to be distributed or is to be maintained by
the Trustee in accordance with the provisions of the Plan
and this Trust Agreement. If the Committee directs that
the Trust Fund is to be distributed, the Trustee shall
establish the fair market value of the Trust fund as of
such interim Valuation Date as is designated by the
Committee, and, after paying the reasonable expenses
involved in the termination of the Plan, shall distribute
all of a part of the assets of the Trust fund (converting
such assets into cash, as necessary) in accordance with
the written directions of the Committee (including, to
the extent permitted by applicable federal law, a direct
distribution to one or more Member Companies of any
excess assets of the Trust Fund remaining after all
liabilities of the Plan and the Trust Fund to the Members
and Beneficiaries have been satisfied).
(b) If, at the date of termination of the
Plan, the Plan remains indebted with respect to an Acqui-
sition Loan, the Committee shall instruct the Trustee,
prior to making the final Plan allocations, to pay the
accrued principal and interest and to prepay the remain-
ing principal balance of the Acquisition Loan with the
shares of Employer Securities held in the Loan Suspense
Account or with the proceeds of a sale or other disposi-
tion of such Employer Securities. If any assets remain
in the Loan Suspense Account after all Acquisition Loans
have been fully discharged, such assets shall be allocat-
ed as income of the Trust Fund for the Plan Year in which
the Plan terminates.
(c) In the event of the withdrawal of any
Member Company from the Plan, the Trustee shall distrib-
ute the assets of the Trust Fund attributable to the
Members employed by the Member Company, and their Benefi-
ciaries, in accordance with the written directions of the
Committee.
(d) Notwithstanding the provisions of subSec-
tions (a), (b) and (c):
(1) To the extent permitted by the United
States Department of Labor, the Trustee may pay, from the
assets of the Trust Fund, the reasonable expenses
involved in the termination of the Trust Fund prior to
distributing the assets of the Trust Fund as directed by
the Committee;
(2) The Trustee shall not comply with any
instruction to transfer assets of the Trust Fund to the
funding agent of any other employee benefit plan unless
the Trustee determines that such transfer of assets will
comply with the requirements of the Code, and that any
required actuarial statement of valuation has been prop-
erly filed; and
(3) The Trustee may condition the deliv-
ery, transfer or distribution of any or all assets of the
Trust Fund upon its receipt of assurance satisfactory to
it that the approval of appropriate governmental or other
authorities has been secured (including, if the Trustee
so requests, a favorable determination letter issued by
the Internal Revenue Service to the effect that the
termination of the Plan will not adversely affect the
Plan's qualified status), that any such action will not
give rise to a non-exempt prohibited transaction under
ERISA or the Code and that there has been proper compli-
ance with all notices and other procedures required by
applicable law.
ARTICLE 9
Communications
9.1 Company's and Committee's Address
Communications to the Company shall be ad-
dressed to it at ________________________________________
_________________. Communications to the Committee shall
be addressed to it in care of the Company, at the address
above, provided, however, that upon the Company's or the
Committee's written request, such communications shall be
sent to such other address as the Company or the Commit-
tee, as the case may be, may specify.
9.2 Trustee's Address
Communications to the Trustee shall be ad-
dressed to it at _______________________________________
_________________ provided, however, that upon the writ-
ten request of the Trustee, such communications shall be
sent to such other address or addresses as the Trustee
may specify.
9.3 Binding Upon Receipt
No communication shall be binding on the Trust-
ee, Company or Committee until it is received by such
party.
9.4 Communication in Writing
Any action of the Company or the Committee
pursuant to this Trust Agreement, including all orders,
requests, directions, instructions, approvals and objec-
tions of the Company or the Committee to the Trustee,
shall be in writing signed on behalf of the Company or
the Committee by any duly authorized officer of the
Company or member of the Committee, respectively. The
Trustee shall be governed by such action and, to the
maximum extent permitted by ERISA, be fully protected,
and indemnified in accordance with and subject to the
conditions of Section 6.3 hereof, in relying thereon.
ARTICLE 10
Miscellaneous
10.1 Gender, Tense and Headings
Whenever any words are used herein in the
masculine gender, they shall be construed as though they
were also used in the feminine gender in all cases where
they would so apply. Whenever any words used herein are
in the singular form, they shall be construed as though
they were also used in the plural form in all cases where
they would so apply.
Headings of Articles, Sections and subSections
as used herein are inserted solely for convenience and
reference and constitute no part of this Trust Agreement.
10.2 Governing Law
This Trust Agreement shall be construed and
governed in all respects in accordance with applicable
federal law, and, to the extent not preempted by such
federal law, in accordance with the laws of the state of
New York.
10.3 Mistake of Fact
Notwithstanding any other provisions herein
contained, if any contribution is made due to a mistake
of fact, such contribution shall, upon the direction of
the Committee, which shall be given in conformity with
the provisions of ERISA, be returned to the Company or
the party who made it, as directed by the Company, with-
out liability to any person (including, but not limited
to, Members and Beneficiaries).
10.4 Qualification of Plan
Notwithstanding any other provisions herein
contained, the Trust Agreement is entered into on the
condition that the Plan and the Trust Agreement shall be
approved by the Internal Revenue Service as a qualified
and exempt plan and trust under the provisions of the
Code and the Treasury Regulations. If such approval
should be denied for any reason (including failure to
comply with any conditions for such approval imposed by
the Internal Revenue Service), contributions made after
the execution of the Trust Agreement and prior to such
denial shall, upon the direction of the Committee, which
shall be given in conformity with the provisions of
ERISA, be returned to the Company or the party who made
it, as directed by the Company, without any liability to
any person, within one year after the date of denial of
such approval. All remaining assets in the Trust shall
be returned to the Company.
10.5 Deductibility of Contributions
Notwithstanding any other provisions herein
contained, all contributions made under the Plan are
hereby expressly conditioned upon their deductibility
under Section 404 of the Code and the Treasury Regula-
tions thereunder, as amended from time to time, and if
the deduction for any contribution is disallowed in whole
or in part, then such contribution (to the extent the
deduction is disallowed) shall, upon the direction of the
Committee, which shall be given in conformity with the
provisions of ERISA, be returned to the Company or the
party who made it without liability to any person.
10.6 Receipt or Release
Any payment to any Member or Beneficiary in
accordance with the provisions of this Trust shall, to
the extent thereof, be in full satisfaction of all claims
against the Trustee, and the Trustee may require such
Member or Beneficiary, as a condition precedent to such
payment, to execute a receipt and release to such effect.
10.7 Alienation
Except in the case of a Qualified Domestic
Relations Order, (a) the benefits, proceeds, payments, or
claims of any Member or Beneficiary payable from the
Trust assets shall not be subject in any manner to antic-
ipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of
any kind, either voluntary or involuntary including any
such liability which is for alimony or other payments for
support of a spouse or former spouse, (b) any attempt to
anticipate, alienate, sell, transfer, assign, pledge,
encumber, garnish, levy or otherwise dispose of or exe-
cute upon any right or benefit payable hereunder shall be
void, and (c) the Trust assets shall not in any manner be
liabile for or subject to the debts, contracts, liabili-
ties, engagements, or torts of any Member entitled to
benefits hereunder and such benefits shall not be consid-
ered an asset of the Member in the event of his insolven-
cy or bankruptcy.
10.8 Accounting Period
This Trust shall adopt as its fiscal year the
twelve (12) consecutive month period beginning January 1
of each year and ending December 31 of such year for
accounting purposes; provided, however, that the first
fiscal year shall begin on the Effective Date of this
Trust and shall end on December 31, 1994.
10.9 Title of Trust Assets
The legal and equitable title and ownership of
all assets at any time constituting a part of the Trust
Fund shall be and remain with the Trustee and neither the
Employer nor any Member shall ever have any legal or
equitable estate therein, save and except that a Member
shall be entitled to receive distributions as and when
lawfully made under the terms hereof, and the Employer
may receive a distribution to the extent permitted by
Section 8.2(a), 10.3, 10.4, or 10.5.
10.10 Titles for Convenience Only
Titles to the Sections of the Trust Agreement
are included for convenience only and shall not control
the meaning of interpretation of any provision of the
Trust Agreement.
10.11 Entire Agreement; Parties Bound
The Trust Agreement and the Plan contain the
entire agreement and understanding of the Company, the
Member Companies and the Trustee with respect to the
subject matter hereof and supersede all prior agreements
and understandings related to such subject matter. This
Agreement shall be binding upon the parties hereto and
their successors and assigns.
10.12 Executed Counterparts
The Trust Agreement may be executed in any
number of counterparts, each of which shall be deemed to
be the original although the others shall not be pro-
duced.
IN WITNESS WHEREOF, the Company and the Trustee have
executed this Trust Agreement on this ______ day of
November, 1994, effective as of November 8, 1994.
______________________________
Trustee:
______________________________
Company:
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, dated November 8, 1994, included in this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8 (Nos. 2-82183,
2-99536, 33-14259, 33-39090 and 33-52319).
Arthur Andersen LLP
Roseland, New Jersey
December 5, 1994
5
YEAR
SEP-30-1994
SEP-30-1994
28,659,000
29,727,000
92,044,000
3,659,000
68,918,000
222,676,000
94,733,000
44,843,000
293,215,000
101,628,000
15,538,000
8,472,000
0
419,000
167,158,000
293,215,000
488,957,000
488,957,000
344,485,000
344,485,000
0
805,000
1,803,000
50,347,000
20,642,000
29,705,000
0
0
0
29,705,000
.80
.80
Fully diluted per share data is the same as primary since, as permitted
by APB No. 15, dilution is less than three percent.
