-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ASeb5jyEa/oVry/NWuz0ciRYAsE1A2ybf5KQY+ujCnx6/60gey6ckoCO+DkzaCL3 5g412hh0Shq4Sywi3UOqgQ== 0000098559-96-000003.txt : 19960228 0000098559-96-000003.hdr.sgml : 19960228 ACCESSION NUMBER: 0000098559-96-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960227 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOKHEIM CORP CENTRAL INDEX KEY: 0000098559 STANDARD INDUSTRIAL CLASSIFICATION: REFRIGERATION & SERVICE INDUSTRY MACHINERY [3580] IRS NUMBER: 350712500 STATE OF INCORPORATION: IN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06018 FILM NUMBER: 96526078 BUSINESS ADDRESS: STREET 1: P O BOX 360 CITY: FORT WAYNE STATE: IN ZIP: 46801-0360 BUSINESS PHONE: 2194232552 10-K 1 February 23, 1996 Securities and Exchange Commission Division of Corporate Finance 500 North Capitol Street Washington, D.C. 20549 Gentlemen: Pursuant to Section 13 or 15 (d) of the Securities and Exchange Act of 1934, we enclose Form 10-K for the period ended November 30, 1995. An additional copy has been filed with the New York Stock Exchange. Sincerely, TOKHEIM CORPORATION JOHN A. NEGOVETICH John A. Negovetich Vice President and Chief Financial Officer Enclosures pc: New York Stock Exchange - Division of Stock List Fred Axley - McDermott Will & Emery Louis Pach - Coopers & Lybrand UNITED STATES 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 (FEE REQUIRED) For fiscal year ended NOVEMBER 30, 1995 COMMISSION FILE NUMBER 1-6018 TOKHEIM CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) INDIANA 35-0712500 - ------------------------ -------------------------- (State of Incorporation) (I.R.S. Employer I.D. No.) 10501 CORPORATE DR., P.O. BOX 360, FORT WAYNE, INDIANA 46801 - ------------------------------------------------------ ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (219) 470-4600 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - -------------------------- ----------------------- COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE Securities registered pursuant to Section l2(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 [ ] As of February 2, 1996, 7,937,988 shares of voting common stock were outstanding. The aggregate market value of shares held by non-affiliates was $61.1 million (based on the closing price of these shares on the New York Stock Exchange). In addition, 808,620 shares of convertible preferred stock were held by the Trustee of the Retirement Savings Plan for Employees of Tokheim Corporation and Subsidiaries. The liquidation value is $25 per share with an aggregate liquidation value of $20.2 million. For a complete discussion regarding the attributes of this preferred stock see Item 5 on page 7. DOCUMENTS INCORPORATED BY REFERENCE DOCUMENT FORM 10-K --------------- --------------- Proxy Statement Part III, Item(s) 10-13 The Table of Contents is located on the following page. The total number of pages is 45. The Exhibit Index is located on Page 39. TOKHEIM CORPORATION 1995 FORM 10-K ANNUAL REPORT Table of Contents PART I Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . 6 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 6 Item 4. Submission of Matters to a Vote of Security Holders . . . . . 6 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . 7 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . 11 Item 8. Financial Statements and Supplementary Data . . . . . . . . . 14 Item 9. Disagreements on Accounting and Financial Disclosure. . . . . 36 PART III Item 10. Directors and Executive Officers of the Registrant. . . . . . 36 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 38 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . 38 Item 13. Certain Relationships and Related Transactions. . . . . . . . 38 PART IV Item l4. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 39 2 PART I ITEM 1. BUSINESS. (a) General: Tokheim Corporation and its subsidiaries (the "Company") are engaged in the design and manufacture of electronic and mechanical petroleum dispensing marketing systems, including service station equipment, point-of-sale (POS) control systems, and card- and cash-activated transaction systems for customers around the world. Sales of the Company's products can be affected by a variety of factors, such as environmental regulations, retail petroleum construction, the price of oil, interest rates, weather conditions, political stability in foreign markets, and general economic conditions. RECENT DEVELOPMENTS The information that follows should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes thereto included elsewhere in this Form 10-K. The continuing improvement during 1995 in industry demand for petroleum marketing equipment was driven by the development of emerging markets, compliance with U.S. Federal Clean Air Act amendments requiring Stage II vapor recovery, and the desire for increased automation equipment, including dispenser payment terminals and point-of-sale systems. In addition, Tokheim's operating performance continued to benefit from new product introductions, strengthened distribution channels, increased international market penetration, and cost- reduction programs which more than offset price deterioration. The Board of Directors recently approved capital expenditures of approximately $12.8 million for important improvements in plant productivity and capacity, product design, and quality of both products and processes which should enhance future operating results. During the year, the Fort Wayne facility achieved a quality milestone - ISO 9000 certification. This was an important accomplishment for the Fort Wayne plant, which now joins the plants in the U.K. and South Africa which are also ISO certified. ISO 9000 will help the Company to continue its expansion into markets recognizing this certification, especially European markets. In 1995 the Company introduced a number of new products, including the Windows(R) PC-based Columbus point-of-sales (POS) system. In addition, the existing POS system was expanded to include 15 major oil company networks, with plans to expand to 20 networks, covering virtually the entire industry, by the end of 1996. Another significant product introduction in 1995 was the new line of retrofit dispenser heads which enable installed Tokheim equipment to have the same electronics and functionality as our newest designs. (b) Financial Information About Business and Geographical Segments: Financial information about business and geographical segments for the years ended November 30, 1995, 1994, and 1993, is set forth in Item 8 of this Report in Note 12 to the Consolidated Financial Statements captioned "Business and Geographical Segments." 3 (c) Narrative Description of Business: PETROLEUM DISPENSING EQUIPMENT AND SYSTEMS This market is served by: (a) Tokheim Corporation, United States; Tokheim Europe B.V.,The Netherlands; Tokheim and Gasboy of Canada Limited, Canada; Tokheim GmbH, Germany; Tokheim Limited, The United Kingdom; and Tokheim South Africa (Proprietary) Limited, South Africa, which are involved in the design, manufacture, and marketing of petroleum dispensing equipment and services, point-of-sale systems, card- and cash-activated transaction systems, and commercial dispensers, and (b) Gasboy International, Inc., United States, which designs, manufactures, and distributes petroleum dispensing equipment for the consumer, fleet, and commercial markets. Gasboy also designs and manufactures vehicle fleet management and control systems and point-of-sale terminals for dual purpose, retail, and fleet applications. In 1995, 1994, and 1993, the petroleum industry accounted for all of the Company's sales. Approximately 85%, 83%, and 81%, respectively, of Company's sales were derived from the sale of service station gasoline dispensers, parts, accessories, and service contracts, which are sold to major oil companies for their own gasoline stations and to independent retail station owners through the Company's distributor and manufacturers' representative organization. International sales by foreign subsidiaries and exports from the U.S. approximated 43%, 41%, and 42% of consolidated net sales in 1995, 1994, and 1993, respectively. While risks attendant to operations in foreign countries vary widely from country to country, the Company is of the opinion that, considered in the aggregate, the risks attendant to its operations in foreign countries are not significantly greater than the risks attendant to operations in the United States. Products are distributed in the United States by a sales organization which operates from national account offices, district sales offices, petroleum equipment firms, industrial suppliers, and distributors, in major cities across the United States. In areas outside the United States, product distribution is accomplished by the International Division through foreign subsidiaries, distributors, and special sales representatives. In addition to its widespread sales organization, there are more than 1,400 trained field service representatives acting as independent contractors, many of whom maintain service parts inventory. The Company's Customer Service Division maintains a Help Desk which is open 24 hours a day, 365 days a year for immediate responsiveness to service needs. Additionally, the Customer Service Division maintains a continuing program of service clinics for personnel of customers and distributors, both in the field and at the Company's training centers. The business is somewhat seasonal, primarily relating to the construction season and increased purchase activity by major oil companies toward the end of the calendar year. The market for these products is highly competitive. The Company and its subsidiaries all compete with a number of companies, some of which have greater sales and assets than the Company. The Company competes domestically against four manufacturers of service station dispensers. Environmental regulations and service station automation are expected to continue to favorably impact the future growth of the Company's business both domestically and internationally. The Company's belief that environmental regulations will have a favorable impact is based upon experience, analysis, and a study of the proposed Vapor Recovery Market published by an independent consultant to the Company. That study concludes that a significant number of retail service stations across the United States will be impacted by Stage II Vapor Recovery Control regulations effective in stages through 1996. The study further indicates that while the majority of service stations will retrofit existing dispensers, requiring purchase of a retrofit kit from a dispenser manufacturer, a large number of older dispensers will be replaced. 4 With respect to service station automation, a separate independent study has estimated that approximately 30,000 stations will install point-of-sale systems between 1993 and 1999. It is, therefore, expected that overall market demand may be on the rise throughout this period. The Company's conclusions regarding international markets arise from its sales experience suggesting that international markets tend to follow the lead of the United States in addressing environmental issues and automation opportunities. Strong demands from emerging markets during the past year is expected to continue into and favorably impact 1996. The dollar amount of backlog considered to be firm as of the end of fiscal year 1995 was approximately $21.0 million, compared to approximately $16.6 million and $23.0 million at the end of fiscal years 1994 and 1993, respectively. The Company expects that the entire backlog will be filled in fiscal year 1996. Backlog amounts at any fiscal year-end are not an indicator of sales during the forthcoming year. Factors impacting backlog levels at any point in time include such events as the timing of purchases by the major oil companies, announcements of price adjustments, sales promotions, and production delays, which mitigate against comparisons of one period to another. In fiscal 1995, no one customer accounted for as much as ten percent of the Company's consolidated sales. The principal raw materials essential to the Company's business are flat sheet steel, aluminum, copper tubing, iron castings, and electronic components, all of which are available through several competitive sources of supply. The Company holds a number of patents, no one of which is considered essential to its overall operations. The Company relies primarily on its engineering, production, marketing, and service capabilities to maintain its established position within the industry it now serves. At November 30, 1995, the Company employed approximately 1,700 persons at its various locations. NEW PRODUCTS The Company spent approximately $12.7 million in 1995; $10.2 million in 1994; and $8.6 million in 1993 on activities related to the support and improvement of existing products, manufacturing methods, the development of new products, and other applied research and development. Last year, a major investment was made to upgrade out engineering facility with an advanced CAD/CAM system. Not only was the Company successful in implementing the system, but also in applying it to new product introductions. Research and development projects are evaluated on the basis of cash payback and return on investment. A number of new products were introduced by the Company during 1995. Major enhancements were made to the POS systems product line including introduction of the Windows(R) PC-based Columbus system, an island payment terminal, a card reader upgrade for the Multi-Modular Dispenser, a retrofit head for Tokheim Convenience Systems, and installation of the Tokheim POS system in 15 major oil company networks by the end of 1995. Products introduced in the commercial and fleet market segmemtns include ASTRA, a unique electronic commercial dispenser with a remote display designed specifically for the above-ground market; Fuel Point, a fully automated fuel management system which captures vehicle identification and odometer information at the dispenser nozzle; and Oilex, a fully automated oil change device capable of changing the oil in a commercial truck in less than ten minutes through a single connection. (d) Financial Information About Foreign and Domestic Operations and Export Sales: Financial information about foreign and domestic operations and export sales for the years ended November 30, 1995, 1994, and 1993 is set forth in Item 8 of this Report in Note 12 to the Consolidated Financial Statements captioned "Business and Geographical Segments." 5 ITEM 2. PROPERTIES. The Company owns properties located in: Fort Wayne, Indiana; Fremont, Indiana; Washington, Indiana; Lansdale, Pennsylvania; Brighton, Ontario, Canada; Leiderdorp, The Netherlands; Kya Sand, Randburg, South Africa; Glenrothes, Scotland; Weilheim, Germany; Jasper, Tennessee; and Atlanta, Georgia. Due to plant consolidations and the sale of the Controls segment, the following properties were sold in 1993: Newbern, Tennessee; Dallas, Texas; and London, Ontario, Canada. The Jasper, Tennessee and Atlanta, Georgia facilities are currently being held for sale. The above properties are all manufacturing oriented except as noted below: The Company owns an engineering and design center and corporate office building and an adjacent 116-acre tract of unimproved land located north of Fort Wayne, Indiana. The building in Leiderdorp, The Netherlands, which previously housed a distribution facility, was sold subsequent to November 30, 1995. The Company now leases space in Leiderdorp, The Netherlands, for a sales and technical support facility. ITEM 3. LEGAL PROCEEDINGS. As more fully described in Item 8 of this report in Note 16 to the Consolidated Financial Statements captioned "Contingent Liabilities", the Company is defending various claims and legal actions, including environmental and product liability actions, which are common to its operations. These legal actions primarily involve claims for damages arising out of the Company's manufacturing operations, the use of the Company's products, and allegations of patent infringement. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 6 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock is traded on the New York Stock Exchange under the symbol "TOK". The approximate number of stockholders of the Company's common stock as of November 30, 1995, was 7,000. No dividends were paid on common stock in 1995, 1994, and 1993 in accordance with restrictive covenants under the Company's loan agreement. The high-low sales prices for the Company's common stock are set forth as follows: QUARTERLY HIGH-LOW SHARE PRICES 1995 1994 Share Price Share Price Quarter High-Low High-Low ------- ------------- --------------- 1 9 5/8 - 7 1/4 15 1/8 - 11 2 9 1/4 - 7 1/2 14 - 11 3 9 - 6 1/2 12 1/8 - 8 5/8 4 7 3/4 - 6 3/8 9 5/8 - 8 1/4 In September 1993, the Company issued an additional 1,283,000 shares of common stock through a private placement offering, resulting in net proceeds of approximately $11.5 million. On July 10, 1989, the Company sold 960,000 shares of convertible cumulative preferred stock to the Trust of the Company's Retirement Savings Plan (RSP) at the liquidation value of $25 per share, or $24 million. The preferred shares have a dividend rate of 7.75%. The Trustee, who holds the preferred shares, may elect to convert each preferred share to one common share in the event of redemption by Tokheim, certain consolidations or mergers of Tokheim, or a redemption by the Trustee which is necessary to provide for distributions under the RSP. A participant may elect to receive a distribution from the RSP in cash or common stock. If redeemed by the Trustee, the Company is responsible for purchasing the preferred shares at the $25 floor value. The Company may elect to pay the redemption price in cash or an equivalent amount of common stock. At November 30, 1995, the difference between the floor value and the market value of the underlying common stock aggregated $6.7 million. ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data is not covered by the Auditor's Report, but should be read in conjunction with the Consolidated Financial Statements and related Notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 7 SELECTED FINANCIAL DATA TOKHEIM CORPORATION AND SUBSIDIARIES (Amounts in thousands except amounts per share) 1995 1994 1993 -------- -------- -------- OPERATING RESULTS: Net sales.................................................. $221,573 $202,134 $172,306 Cost of products sold (2).................................. 167,329 154,652 133,326 Equity in net loss of unconsolidated affiliate............. -- -- -- Earnings (loss) before income taxes, cumulative effect of accounting change, and discontinued operations........ 2,915 2,119 (5,745) Earnings (loss) before income taxes, cumulative effect of accounting change, and discontinued operations percent of sales.............................. 1.3% 1.0% (3.3)% Income taxes............................................... 39 257 122 Earnings (loss) before cumulative effect of accounting change and discontinued operations............ 2,876 1,862 (5,867) Cumulative effect of accounting change..................... -- (13,416) -- Earnings (loss) from continuing operations................. 2,876 (11,554) (5,867) Total earnings from discontinued operations................ -- -- -- Net earnings (loss)........................................ 2,876 (11,554) (5,867) Net earnings (loss) percent of sales....................... 1.3% (5.7)% (3.4)% Dividends paid common...................................... -- -- -- Dividends paid preferred................................... 1,580 1,617 1,663 PRIMARY PER SHARE: Earnings (loss) from continuing operations before cumulative effect of accounting change................... .16 .03 (1.09) Cumulative effect of accounting change.................... -- (1.72) -- Discontinued operations.................................... -- -- -- Net earnings (loss)........................................ .16 (1.69) (1.09) FULLY DILUTED PER SHARE: Earnings (loss) from continuing operations before cumulative effect of accounting change................... .13 .03 (1.09) Cumulative effect of accounting change.................... -- (1.72) -- Discontinued operations.................................... -- -- -- Net earnings (loss)........................................ .13 (1.69) (1.09) Dividends paid per common share............................ -- -- -- FINANCIAL POSITION: Current assets............................................. 86,798 80,408 83,139 Current liabilities........................................ 39,545 36,114 53,725 Current ratio.............................................. 2.2 to 1 2.2 to 1 1.5 to 1 Working capital............................................ 47,253 44,294 29,414 Term debt.................................................. 21,321(5) 18,941(5) 5,374 Guaranteed Employees' Stock Ownership Plan (RSP) obligation............................................... 14,576 16,975 19,206 Property, plant, and equipment, net........................ 28,558 27,425 29,004 Total assets............................................... 121,232 113,505 117,065 Stockholders' equity....................................... 27,123 25,116 33,640 Return on average equity................................... 10.4% (41.8)% (21.3)% Term debt percent of equity................................ 78.6% 75.4% 16.0% Term debt percent of equity with Guaranteed Employees' Stock Ownership Plan (RSP) obligation......... 132.3% 143.0% 73.1% Primary average number of common shares.................... 7,911 7,801 6,940 Fully diluted average number of common shares.............. 9,820 9,223 8,236 CAPITAL EXPENDITURES AND DEPRECIATION: Capital expenditures....................................... 5,559 2,757 2,503 Depreciation............................................... 4,216 4,405 4,813
See footnote explanations on page 10. 8 SELECTED FINANCIAL DATA TOKHEIM CORPORATION AND SUBSIDIARIES (Amounts in thousands except amounts per share) 1992 (1) 1991 (1) -------- -------- OPERATING RESULTS: Net sales.................................................. $162,089 $167,522 Cost of products sold (2).................................. 128,690 131,903 Equity in net loss of unconsolidated affiliate............. -- 754 Earnings (loss) before income taxes, cumulative effect of accounting change, and discontinued operations........ (33,801) (21,954) Earnings (loss) before income taxes, cumulative effect of accounting change, and discontinued operations percent of sales.............................. (20.8)% (13.1)% Income taxes............................................... 1,383 1,194 Earnings (loss) before cumulative effect of accounting change and discontinued operations............ (35,184) (23,148) Cumulative effect of accounting change..................... -- -- Earnings (loss) from continuing operations................. (35,184) (23,148) Total earnings from discontinued operations................ 10,278 1,402 Net earnings (loss)........................................ (24,906) (21,746) Net earnings (loss) percent of sales....................... (15.4)% (13.0)% Dividends paid common...................................... -- 2,649 Dividends paid preferred................................... 1,790 1,831 PRIMARY PER SHARE: Earnings (loss) from continuing operations before cumulative effect of accounting change................... (5.86) (3.96) Cumulative effect of accounting change.................... -- -- Discontinued operations.................................... 1.63 .22 Net earnings (loss)........................................ (4.23) (3.74) FULLY DILUTED PER SHARE: Earnings (loss) from continuing operations before cumulative effect of accounting change................... (5.86) (3.96) Cumulative effect of accounting change.................... -- -- Discontinued operations.................................... 1.63 .22 Net earnings (loss)........................................ (4.23) (3.74) Dividends paid per common share............................ -- .42 FINANCIAL POSITION: Current assets............................................. 83,306 117,586 Current liabilities........................................ 57,752 99,803 Current ratio.............................................. 1.4 to 1 1.2 to 1 Working capital............................................ 25,554 17,783 Term debt.................................................. 7,674 11,087 Guaranteed Employees' Stock Ownership Plan (RSP) obligation............................................... 21,280 --(3) Property, plant, and equipment, net........................ 32,851 47,490 Total assets............................................... 121,588 178,525 Stockholders' equity....................................... 28,621 60,554 Return on average equity................................... (50.0)% (27.7)% Term debt percent of equity................................ 26.8% 20.1%(4) Term debt percent of equity with Guaranteed Employees' Stock Ownership Plan (RSP) obligation......... 101.2% 58.4%(4) Primary average number of common shares.................... 6,307 6,307 Fully diluted average number of common shares.............. 7,236 7,255 CAPITAL EXPENDITURES AND DEPRECIATION: Capital expenditures....................................... 2,045 6,910 Depreciation............................................... 6,089 6,854
See footnote explanations on page 10. 9 (1) Represents fiscal years' financial information reclassified for discontinued operations. (2) Includes product development expenses and excludes depreciation and amortization. (3) A component of long-term obligations in technical default classified as current. (4) Includes long-term obligations in technical default classified as current. (5) Includes $16,700 in 1995 and $14,700 in 1994 of domestic notes payable classified as long-term. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The continuing improvement during fiscal 1995 in industry demand for petroleum marketing equipment was driven by the development of emerging markets, compliance with U.S. Federal Clean Air Act amendments requiring Stage II vapor recovery, and the desire for increased automation equipment including dispenser payment terminals and point-of-sale systems. In addition, Tokheim's operating performance continued to benefit from new product introductions, strengthened distribution channels, increased international market penetration, and cost- reduction programs which more than offset price deterioration. Net earnings in 1995 were $2.9 million, or $0.13 per fully diluted share, versus $1.9 million, or $0.03 per share, in 1994 before the cumulative effect of a change in accounting, or a 1994 net loss of $11.6 million, or $1.69 net loss per share. In 1993, the net loss amounted to $5.9 million, or $1.09 net loss per share. Fiscal 1995 operating earnings were favorably impacted principally by a $19.4 million increase in sales and improved gross margin on product sales resulting from cost control measures, new product introductions, and product mix improvements. Fiscal 1994 operating earnings were favorably impacted principally by a $29.8 million increase in sales and improved gross margin on product sales. Fiscal 1993 operating earnings were principally impacted by a $10.2 million increase in sales; an improved gross margin on product sales; and lower selling, general, and administrative expenses. Consolidated sales were $221.6 million, an increase of 10% from $202.1 million in 1994 and an increase of 29% from 1993 sales of $172.3 million. Both domestic and international sales contributed to this gain. Domestic sales of petroleum dispensing equipment and systems increased 6% from $119.8 million in fiscal 1994 to $126.7 million in fiscal 1995. International sales were $94.8 million in fiscal 1995, up 15% from fiscal 1994 sales of $82.4 million. The gross margin on product sales for 1995 was 24.5% which was up from the prior year's 23.5% due primarily to higher sales volume and actions taken to improve the Company's cost structure offset, in part, by lower price realization. The gross margin on product sales for 1994 had increased from the 1993 level of 22.6% due primarily to higher sales volume and the impact of cost reduction programs. Selling, general, and administrative expenses as a percentage of net sales in each of the past three years were 19.5% in 1995, compared to 18.7% in 1994 and 20.6% in 1993. The increase in 1995 was attributable to sales promotion efforts to penetrate new markets, costs incurred in connection with reorganization of the European operations, and improvements in information systems. The decrease in 1994 was due to cost reduction efforts and higher sales levels. The primary components of other expense in each of the three years were debt restructuring expenses and employee severance payments. The combined domestic and international operations incurred operating income of $6.1 million in 1995 compared to $5.0 million in 1994 and an operating loss of $1.8 million in 1993. Net interest expense of $2.8 million increased over 1994 interest of $2.4 million reflecting increased borrowings throughout the year to support higher levels of sales, as well as slightly higher rates. Interest expense in 1994 was $0.5 million less than 1993 reflecting the Company's debt reduction program. A net foreign currency exchange gain of $0.1 million earned in fiscal 1995 was about the same as fiscal 1994. A net foreign currency exchange loss of $0.5 million was incurred in fiscal 1993. The foreign currency gains and losses during these years were primarily a result of fluctuations in the exchange rates on intercompany balances between the Tokheim Corporation parent company and its foreign subsidiaries. The Company's long-term investment in foreign subsidiaries, when translated at fiscal 1995 conversion rates, resulted in a translation adjustment reflected as a $3.5 million charge to stockholders' equity in both 1995 and 1994 versus the comparable 1993 amount of $4.0 million. 11 In fiscal 1995, the Company sold a noncore product line and related assets. Net proceeds were $0.5 million, and a net gain of $0.5 million was realized. Fully diluted net earnings were $0.13 per share in 1995 versus 1994 earnings per share before accounting change of $0.03 and a 1994 net loss of $1.69 per share after accounting change, and a net loss of $1.09 per share incurred in fiscal 1993. The weighted average shares outstanding used in computing fully diluted earnings per share were 9,820,000 in 1995; 7,801,000 in 1994; and 6,940,000 in 1993. No dividends were paid on common stock during fiscal years 1993 through 1995 in accordance with restrictive covenants under the Company's loan agreement. The number of stockholders as of November 30, 1995 was approximately 7,000. Inflation has not had a significant impact on the Company's results of operations. LITIGATION AND ENVIRONMENTAL MATTERS Claims have been brought against the Company and its subsidiaries for various legal matters. In addition, the Company's operations are subject to federal, state, and local environmental laws and regulations. For further details, see Notes to Consolidated Financial Statements No. 16, "Contingent Liabilities." OTHER In the first quarter of 1994, the Company adopted a mandatory noncash accounting change pursuant to Statement of Financial Accounting Standards (SFAS) No. 106 which governs accounting for nonpension retiree benefit costs. SFAS No. 106 requires companies to project the future cost of providing retiree medical, dental, and life insurance benefits and recognize that cost as benefits are earned during the employee's career. Tokheim's actuarially determined liability was $13.4 million which the Company elected to record as a one-time noncash accounting adjustment versus the alternative of amortizing the amount over a period not to exceed 20 years. At November 30, 1995, the Company's accrual was $14.8 million. Adoption of the new accounting standard had no cash flow effect nor did it represent a change with respect to previous fiscal years in the benefit levels provided to employees. The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," in the first quarter of 1995. This statement requires an accrual method of accounting for the expected cost of benefits to be paid to former or inactive employees and their covered dependents after employment but prior to retirement. Adoption of the new accounting standard did not have a material impact on the Company's financial position, cash flows, or results of operations, nor did it represent a change in the benefit levels provided to employees. LIQUIDITY AND CAPITAL RESOURCES The Company has available to it a variety of sources of liquidity and capital resources, both internal and external. These resources provide funds required for current operations, debt retirement, capital expenditures, and other requirements. On April 22, 1994, the Company completed a refinancing of its loan agreement which was to have matured on December 1, 1994. The three-year domestic revolving credit agreement which matures on April 21, 1997 is collateralized by substantially all of the unencumbered domestic assets of the Company and its subsidiaries. In addition, the Company in 1994 completed a refinancing of the previous loan agreement for its German subsidiary. 12 Availability of revolving credit under these agreements is subject to borrowing base requirements and compliance with covenants as described below. The Company was in full compliance with all covenants as of November 30, 1995. Restrictions and financial covenants of the agreements include those related to indebtedness, net worth, cash flow coverage, and the ratio of current assets to current liabilities. The domestic credit facility prohibited the payment of cash dividends on common stock through fiscal year 1994. Beyond fiscal 1994, dividends on common stock are limited by a cash flow coverage test and a net income test. In 1995, dividends on common stock were prohibited by these tests. Cash provided from operations was $3.2 million in 1995 compared to $2.4 million in 1994 and a deficit of $5.0 million in 1993. The increases in 1995 and 1994, relative to the previous year, reflect the increase in operating earnings and continued improvement in working capital management. The Company's investing activities are generally for capital expenditures which amounted to $5.6 million in 1995, $2.8 million in 1994, and $2.5 million in 1993. In 1995, the Company received proceeds from sales of property, plant, and equipment of $0.6 million versus $0.2 million and $2.4 million in 1994 and 1993, respectively. At November 30, 1995, no significant contractual commitments existed for future capital expenditures. Prior to fiscal 1995 year-end, the Board of Directors approved capital expenditures of approximately $12.8 million for improvements in plant productivity and capacity, product design, and quality of both products and processes. The Company is evaluating various sources to fund these expenditures and does not foresee any difficulty obtaining adequate funding. Financing activities in 1995 were limited to normal business transactions. Financing activities in 1994 primarily resulted in a $5.7 million reduction in debt which aggregated $38.8 million at November 30, 1994 versus $44.5 million at November 30, 1993. Financing activities in 1993 included the issuance of 1,283,000 shares of common stock in a private placement with institutional investors, raising a net of $11.5 million of new equity capital. The Company reduced its debt during 1993 by $13.4 million from November 30, 1992. Peak short-term borrowings were $19.9 million in 1995, $18.4 million in 1994, and $25.0 million in 1993. The weighted average interest rate for these borrowings was approximately 8.6% in 1995, 8.1% in 1994, and 8.9% in 1993. Preferred stock dividends paid were $1.6 million, $1.6 million, and $1.7 million in fiscal years 1995, 1994, and 1993, respectively. Cash and cash equivalents at November 30, 1995 aggregated $3.0 million versus $3.9 million at November 30, 1994. Working capital at November 30, 1995 increased $3.0 million over the prior year as a result of higher accounts receivable, partially offset by an increase in current liabilities and a decrease in cash and cash equivalents. The Company's current ratio at November 30, 1995 and 1994 was 2.2. The Company has guaranteed loans to its Retirement Savings Plan in the amounts of $14.6 million and $17.0 million at November 30, 1995 and 1994, respectively. The Company has guaranteed a $25 per share value for its convertible preferred stock. At conversion, the Company is responsible for any difference between the market value of the underlying common stock and the $25 guaranteed value of the preferred stock. At November 30, 1995, this difference aggregated $6.7 million. Total interest-bearing debt as a percent of equity for 1995 was 142% compared to 155% for 1994. The decrease in 1995 is primarily due to a reduction in Guaranteed Employees' Stock Ownership Plan Obligation, reduction in common treasury stock, and increased retained earnings. In summary, the Company believes that it has adequate financial resources, both from internal and external sources, to meet its liquidity needs over the next 12 months. 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS TOKHEIM CORPORATION AND SUBSIDIARIES FOR THE YEARS ENDED NOVEMBER 30, 1995, 1994, AND 1993 (Amounts in thousands except amounts per share) 1995 1994 1993 -------- -------- -------- Net sales............................................... $221,573 $202,134 $172,306 Cost of sales, exclusive of items listed below.......... 167,329 154,652 133,326 Selling, general, and administrative expenses........... 43,262 37,854 35,573 Depreciation and amortization........................... 4,857 4,672 5,233 Interest expense (net of interest income of $269, $252, and $369, respectively)................... 2,815 2,350 2,890 Foreign currency (gains) losses........................ (143) (172) 453 Other expense, net...................................... 538 659 576 Earnings (loss) before income taxes and cumulative effect of change in accounting...................... 2,915 2,119 (5,745) Income taxes............................................ 39 257 122 Earnings (loss) before cumulative effect of change in accounting........................................ 2,876 1,862 (5,867) Cumulative effect of change in method of accounting for postretirement benefits other than pensions.......... -- (13,416) -- Net earnings (loss)..................................... 2,876 (11,554) (5,867) Preferred stock dividends ($1.94 per share)............. (1,580) (1,617) (1,663) Earnings (loss) applicable to common stock.............. 1,296 (13,171) (7,530) Retained earnings, beginning of year.................... 9,279 22,829 31,733 Treasury stock transactions............................. (860) (379) (1,374) Retained earnings, end of year.......................... $ 9,715 $ 9,279 $ 22,829 Earnings (loss) per common share: Primary: Before cumulative effect of change in method of accounting................................. $ .16 $ .03 $ (1.09) Cumulative effect of change in method of accounting for postretirement benefits other than pensions........................... -- (1.72) -- Net earnings (loss).............................. $ .16 $ (1.69) $ (1.09) Weighted average shares outstanding.............. 7,911 7,801 6,940 Fully Diluted: Before cumulative effect of change in method of accounting................................. $ .13 $ .03 $ (1.09) Cumulative effect of change in method of accounting for postretirement benefits other than pensions........................... -- (1.72) -- Net earnings (loss).............................. $ .13 $ (1.69) $ (1.09) Weighted average shares outstanding.............. 9,820 7,801 6,940
The accompanying notes are an integral part of the financial statements. 14 CONSOLIDATED STATEMENT OF CASH FLOWS TOKHEIM CORPORATION AND SUBSIDIARIES FOR THE YEARS ENDED NOVEMBER 30, 1995, 1994, AND 1993 (Amounts in thousands) 1995 1994 1993 -------- -------- -------- Cash Flows From Operating Activities: Net earnings (loss)....................................... $ 2,876 $(11,554) $(5,867) Adjustments to reconcile net earnings (loss) to net cash provided from (used in) operations: Cumulative effect of change in method of accounting for postretirement benefits other than pensions.................................. -- 13,416 -- Depreciation and amortization............................ 4,857 4,672 5,233 (Gain) loss on sale of property, plant, and equipment.... (436) (23) 446 Deferred income taxes.................................... (33) (903) (830) Changes in assets and liabilities: Receivables, net................................. (6,140) (1,260) (7,999) Inventories...................................... 444 (300) (590) Prepaid expenses................................. (877) 229 (202) Accounts payable................................. 1,648 (3,694) 7,277 Accrued expenses................................. 2,132 2,486 (4,223) U.S. and foreign income taxes.................... (349) 55 759 Other............................................ (900) (716) 957 Net cash provided from (used in) operations............... 3,222 2,408 (5,039) Cash Flows From Investing and Other Activities: Property, plant, and equipment additions.................. (5,559) (2,757) (2,503) Proceeds from sale of property, plant, and equipment...... 649 195 2,427 Net cash used in investing and other activities........... (4,910) (2,562) (76) Cash Flows From Financing Activities: Proceeds from term debt................................... 2,122 485 -- Payments on term debt..................................... (819) (3,889) (2,176) Net increase (decrease) notes payable, banks.............. 559 (522) (9,166) Proceeds from issuance of common stock.................... -- 49 11,485 Treasury stock, net....................................... 273 431 427 Preferred stock dividends................................. (1,580) (1,617) (1,663) Net cash provided from (used in) financing activities.... 555 (5,063) (1,093) EFFECT OF TRANSLATION ADJUSTMENT ON CASH.................... 166 53 (212) Cash and Cash Equivalents: Decrease in cash.......................................... (967) (5,164) (6,420) Beginning of year......................................... 3,933 9,097 15,517 End of year............................................... $ 2,966 $ 3,933 $ 9,097
The accompanying notes are an integral part of the financial statements. 15 CONSOLIDATED BALANCE SHEET TOKHEIM CORPORATION AND SUBSIDIARIES AS OF NOVEMBER 30, 1995 AND 1994 (Amounts in thousands) ASSETS 1995 1994 -------- -------- Current assets: Cash and cash equivalents.......................... $ 2,966 $ 3,933 Accounts receivable, less allowance for doubtful accounts of $1,150 and $1,295, respectively...... 45,649 38,812 Inventories: Raw materials and supplies....................... 7,649 7,697 Work in process.................................. 25,535 25,675 Finished goods................................... 4,911 4,729 38,095 38,101 Less amounts necessary to reduce certain inventories to LIFO method..................... 3,100 2,746 34,995 35,355 Prepaid expenses................................... 3,188 2,308 Total current assets............................. 86,798 80,408 Property, plant, and equipment, at cost: Land and land improvements......................... 3,311 3,232 Buildings and building improvements................ 22,716 22,150 Machinery and equipment............................ 57,138 55,268 Construction in progress........................... 2,867 1,166 86,032 81,816 Less accumulated depreciation...................... 57,474 54,391 28,558 27,425 Other noncurrent assets and deferred charges......... 5,876 5,672 $121,232 $113,505 The accompanying notes are an integral part of the financial statements. 16 CONSOLIDATED BALANCE SHEET (CONTINUED) TOKHEIM CORPORATION AND SUBSIDIARIES AS OF NOVEMBER 30, 1995 AND 1994 (Amounts in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 -------- -------- Current liabilities: Current maturities of long-term debt............. $ 351 $ 1,248 Notes payable to banks........................... 2,364 1,661 Accounts payable................................. 18,689 16,215 Accrued expenses................................. 18,141 16,990 Total current liabilities.................... 39,545 36,114 Long-term debt, less current maturities............ 21,321 18,941 Guaranteed Employees' Stock Ownership Plan (RSP) obligation....................................... 14,576 16,975 Postretirement benefit liability................... 13,882 13,512 Minimum pension liability.......................... 3,868 1,906 Other long-term liabilities........................ 110 150 Deferred income taxes.............................. 807 791 94,109 88,389 Redeemable convertible preferred stock, at liquidation value of $25 per share, 1,700 shares authorized, 960 shares issued............. 24,000 24,000 Guaranteed Employees' Stock Ownership Plan (RSP) obligation...................................... (13,790) (15,733) Treasury stock, at cost, 151 and 130 shares, respectively..................................... (3,784) (3,262) 6,426 5,005 Preferred stock, no par value; 3,300 shares authorized and unissued.......................... -- -- Common stock, no par value; 30,000 shares authorized, 7,949 shares issued................. 19,409 19,410 Guaranteed Employees' Stock Ownership Plan (RSP) obligation....................................... (786) (1,242) Minimum pension liability.......................... (3,868) (1,906) Foreign currency translation adjustments........... (3,542) (3,543) Retained earnings.................................. 9,715 9,279 20,928 21,998 Treasury stock, at cost, 13 and 106 shares, respectively............................. (231) (1,887) 20,697 20,111 $121,232 $113,505 The accompanying notes are an integral part of the financial statements. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands except dollars per share) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of Tokheim Corporation and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. TRANSLATION OF FOREIGN CURRENCY -- The financial position and results of operations of the Company's foreign subsidiaries are measured using local currency as the functional currency. Revenues and expenses of such subsidiaries have been translated at average exchange rates. Assets and liabilities have been translated at year-end rates of exchange. Translation gains and losses are being deferred as a separate component of stockholders' equity, unless there is a sale or liquidation of the underlying foreign investments. The Company has no present plans for the sale or liquidation of significant investments to which these deferrals relate. Aggregate foreign currency transaction gains and losses are included in determining net earnings. INVENTORY VALUATION -- Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for the major portion of United States inventories and the first-in, first-out (FIFO) method for most other inventories. Inventories valued using the LIFO method amounted to approximately $28,590 and $27,988 on a FIFO basis at November 30, 1995 and 1994, respectively. PROPERTY AND DEPRECIATION -- Depreciation of plant and equipment is determined generally on a straight-line basis over the estimated useful lives of the assets. Upon retirement or sale of assets, the cost of the disposed assets and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income. SOFTWARE DEVELOPMENT COSTS -- Amortization of capitalized software costs is provided over the estimated economic useful life of the software product on a straight-line basis, generally three years. Unamortized software costs included in other noncurrent assets were $543 and $76 at November 30, 1995 and 1994, respectively. The amounts amortized and charged to expense in 1995, 1994, and 1993 were $109, $220, and $382, respectively. All other product development expenditures are charged to research and development expense in the period incurred. These expenses amounted to $12,746; $10,239; and $8,625 in 1995, 1994, and 1993, respectively. INCOME TAXES -- The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective December 1, 1993. In 1993, the Company accounted for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes." The provision for income taxes includes federal, foreign, state, and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. No additional U.S. income taxes or foreign withholding taxes have been provided on earnings of foreign subsidiaries which are expected to be reinvested indefinitely. A determination of the tax liability associated with repatriation of these earnings has not been made as it is not practical. Additional income and withholding taxes are provided, however, on planned repatriations of foreign earnings. 18 POSTEMPLOYMENT BENEFITS -- The Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," in the first quarter of 1995. This statement requires an accrual method of accounting for the expected cost of benefits to be paid to former or inactive employees and their covered dependents after employment but prior to retirement. The adoption of this statement did not have a material impact on the Company's financial position, cash flows, or results of operations. PRODUCT WARRANTY COSTS -- Anticipated costs related to product warranty are expensed in the period of sales. CASH FLOWS -- For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with a maturity of 90 days or less to be cash equivalents. Supplemental disclosures of cash flow information: 1995 1994 1993 ------ ------ ------ Cash paid during the year for: Interest................................... $3,060 $2,441 $3,273 Income taxes............................... 926 894 1,352 Noncash transactions primarily related to the issuance of treasury stock in settlement of Retirement Savings Plan distributions....................... 976 612 1,374 Noncash adjustments to certain assets and liabilities in connection with the settlement of the corporate reorganization........................... 383 224 1,400 RECLASSIFICATION -- Certain prior year amounts in these financial statements have been reclassified to conform with current year presentation. 2. ACCRUED EXPENSES Accrued expenses consisted of the following at November 30, 1995 and 1994: 1995 1994 -------- -------- Salaries, wages, and commissions........ $ 4,308 $ 3,930 Compensated absences.................... 3,480 3,391 Retirement plan contributions........... 516 915 Postretirement benefits................. 887 697 Warranty................................ 2,821 2,506 Legal and professional.................. 1,525 1,274 Taxes, other than United States and foreign income taxes.................. 1,304 1,487 Insurance............................... 440 651 Other................................... 2,860 2,139 $18,141 $16,990 19 3. NOTES PAYABLE TO BANKS Notes payable to banks represent short-term borrowings under domestic and foreign credit lines. In 1995, aggregate amounts outstanding under these lines were $19,064 of which $16,700 has been classified as long-term debt since the Company has the ability, under the terms of the agreement, and the intent to finance these obligations beyond one year. Domestic and foreign credit lines totaled approximately $30,458 of which $11,394 was unused at November 30, 1995. Availability of revolving credit under these agreements is subject to borrowing base requirements and compliance with covenants. The weighted average annual interest rate was 8.6% and 8.1% for 1995 and 1994, respectively. The range of domestic and foreign rates at November 30, 1995 and 1994 was 7.1% to 9.8% and 7.3% to 11.8%, respectively. On April 22, 1994, the Company completed a refinancing of its domestic loan agreement which was to have matured on December 1, 1994. The three-year domestic revolving credit agreement which matures on April 21, 1997 is collateralized by substantially all of the unencumbered domestic assets of the Company and its subsidiaries. In July 1994, the Company completed a refinancing of the previous loan agreement for its German subsidiary. The credit agreement which matures on March 31, 1996 is collateralized by substantially all of the assets of the subsidiary. Each of the debt agreements contains various restrictions relating to, among other things, net worth, leverage, cash flow coverage, incurrance of additional debt, and transactions in the Company's own stock. In addition, the domestic credit facility prohibited the payment of cash dividends on common stock through 1994. Beyond 1994, dividends on common stock are limited by a cash flow coverage test and a net income test. In 1995, dividends on common stock were prohibited by these tests. 20 4. TERM DEBT AND GUARANTEED EMPLOYEES' STOCK OWNERSHIP PLAN (RSP) OBLIGATION Term debt at November 30, 1995 and 1994 consisted of the following: 1995 1994 ------- -------- Industrial Revenue Bonds, variable rate, maturing in 2006, rate of 4.1% at November 30, 1995 (a)(b)............................ $ 4,000 $ 4,500 3.5% German Bonds, due in $49 semiannual installments through 1998 (a)....................................... 292 359 Note payable, variable rate, due in monthly installments ranging from $4 to $8 through 1999, rate of 18.5% at November 30, 1995(a)........ 253 313 Capital lease obligations, variable rate, due in $1 monthly installments through 1998, rate of 18.5% at November 30, 1995(a).... 168 -- 9.2% Capital lease obligation, due in $4 monthly installments through 1997 (a)....................................... 70 114 10.9% Capital lease obligation, due in $2 monthly installments though 1997(a)......................................... 44 -- Revolving credit facility, variable rate, maturing April 21, 1997, rates ranging from 8.8% to 9.8% at November 30, 1995(b)............. 16,700 14,700 Other, 3% to 14% (a)................................................... 145 203 21,672 20,189 Less: Current maturities.............................................. 351 1,248 $21,321 $18,941
Guaranteed Employees' Stock Ownership Plan (RSP) obligation at November 30, 1995 and 1994 consisted of the following: 1995 1994 -------- -------- Guaranteed Employees' Stock Ownership Plan (RSP) obligation, variable rate, annual maturities of $1,506 to $2,845, due in quarterly installments through 2001, rate of 7.5% at November 30, 1995(b)......................................... $13,790 $15,733 Guaranteed Employees' Stock Ownership Plan (RSP) obligation, variable rate, annual maturities of $484 to $303, through 1997, rate of 8.5% at November 30, 1995(b)................................. 786 1,242 $14,576 $16,975
(a) Aggregate cost of plant and equipment pledged as collateral under revenue bonds and lease obligations is $10,558. (b) Per the domestic revolving credit agreement as described in Note 3, the term obligation matures on April 21, 1997. Any extension of the facility beyond April 21, 1997 is at the discretion of the lenders. Aggregate scheduled maturities of the above term debt and Guaranteed Employees' Stock Ownership Plan (RSP) obligation during the ensuing four years approximate $2,932; $29,128; $140; and $48, respectively. 21 5. OPERATING LEASES The Company leases certain manufacturing equipment, office equipment, vehicles, and office and warehousing space under operating leases. These leases generally expire in periods ranging from one to five years. In 1995 the Company leased a CAD/CAM system. The lease is effective for a term of three years with an interest rate of 12% and monthly rentals ranging from $55 to $68. The lease contains a fair market value purchase option at the end of the lease term. Amounts charged to expenses under operating leases in 1995, 1994, and 1993 were $1,986; $1,077; and $1,144, respectively. Minimum rental payments under noncancelable operating leases during the ensuing five years approximate $1,448; $1,211; $307; $145; and $190, respectively. 6. STOCK OPTION PLANS The Company has three separate Stock Option Plans, as outlined below: 1992 Stock Incentive Plan (SIP) The Plan contains both incentive stock options (ISOs) and nonqualified stock options (NSOs). The price of each share under this Plan for an ISO or NSO shall not be less than the fair market value of Tokheim Common Stock on the date the option is granted. Options granted under this Plan become exercisable at the rate of approximately 25% of the total options granted per year beginning one year after the grant date. No option expires later than 10 years from the date on which it was granted. In addition, the Plan provides for the granting of Stock Appreciation Rights (SARs) and Restricted Stock Awards (RSAs). At November 30, 1995, no SARs or RSAs had been granted. 1982 Incentive Stock Option Plan (ISOP) and 1982 Unqualified Stock Option Plan (USOP) Effective January 21, 1992, no additional shares could be granted under these plans. No option expires later than 10 years from the date on which it was granted. The price of each share under the ISOP was not less than the fair market value of Tokheim Common Stock on the date the option was granted and under the USOP was not less than 85% of the fair market value of Tokheim Common Stock on the date the option was granted. Options granted under the SIP plans during 1995, 1994, and 1993 are as follows: Year of 1992 Stock Incentive Plan Grant ISO NSO ------- ----------- -------------- 1995 35,000 -- 1994 19,000 -- 1993 275,162 41,288 Subsequent to November 30, 1995, an additional 43,000 ISO shares were granted under the SIP at an option price of $7.125 per share. These shares become exercisable starting in 1997. 22 The following table sets forth the status of all outstanding options at November 30, 1995: Option Exercisable Total Price Per Options In The Next One Options Share Exercisable To Four Years Outstanding - --------- ----------- --------------- ----------- $20.0000 28,225 -- 28,225 $12.3750 3,000 -- 3,000 $12.2500 1,000 -- 1,000 $11.9375 2,875 8,625 11,500 $ 9.3750 12,500 12,500 25,000 $ 8.8800 107,470 -- 107,470 $ 8.5000 -- 35,000 35,000 $ 7.8750 15,000 -- 15,000 $ 7.7500 30,000 -- 30,000 $ 6.8750 15,000 -- 15,000 $ 6.8125 95,070 116,076 211,146 310,140 172,201 482,341 Transactions in stock options under these plans are summarized as follows: Shares Under Option Price Range ------ ---------------- Outstanding, November 30, 1992.......... 344,750 $ 6.88 - $20.00 Granted................................. 316,450 $ 6.81 - $ 9.38 Exercised............................... (14,797) $ 8.88 - $ 8.88 Canceled or expired..................... (80,675) $ 7.75 - $20.00 Outstanding, November 30, 1993.......... 565,728 $ 6.81 - $20.00 Granted................................. 19,000 $ 10.75 - $11.94 Exercised............................... (29,950) $ 6.81 - $ 8.88 Canceled or expired..................... (12,250) $ 8.88 - $20.00 Outstanding, November 30, 1994.......... 542,528 $ 6.81 - $20.00 Granted................................. 35,000 $ 8.50 Exercised............................... -- Canceled or expired..................... (95,187) $ 6.81 - $20.00 Outstanding, November 30, 1995.......... 482,341 $ 6.81 - $20.00 Reserved for options: Shares -------- November 30, 1993........ 112,550 November 30, 1994........ 98,550 November 30, 1995........ 95,462 23 7. COMMON AND PREFERRED STOCK Changes in common stock and common treasury stock are shown below: Common Stock Common Treasury Stock Shares Amount Shares Amount ---------- ---------- ----------- ---------- Balance, November 30, 1992................. 6,659,000 $ 8,258 352,000 $ 6,335 Shares issued in private placement......... 1,283,000 11,485 -- -- Shares purchased........................... -- -- 7,000 81 Stock options exercised.................... -- (149) (15,000) (265) Redemption of preferred stock.............. -- -- (132,000) (2,368) Employee termination benefits.............. -- -- (21,000) (380) Balance, November 30, 1993................. 7,942,000 19,594 191,000 3,403 Shares purchased........................... -- -- -- 3 Stock options exercised.................... 7,000 (184) (22,000) (405) Redemption of preferred stock.............. -- -- (48,000) (852) Employee termination benefits.............. -- -- (13,000) (230) Other...................................... -- -- (2,000) (32) Balance, November 30, 1994................. 7,949,000 19,410 106,000 1,887 Redemption of preferred stock.............. -- -- (67,000) (1,196) Employee termination benefits.............. -- -- (24,000) (427) Other...................................... -- (1) (2,000) (33) Balance, November 30, 1995................. 7,949,000 $19,409 13,000 $ 231
Changes in preferred stock and preferred treasury stock are shown below: Preferred Preferred Stock Treasury Stock Shares Amount Shares Amount ---------- ---------- ---------- ---------- Balance, November 30, 1992................. 960,000 $24,000 66,000 $ 1,658 Shares redeemed............................ -- -- 46,000 1,131 Balance, November 30, 1993................. 960,000 24,000 112,000 2,789 Shares redeemed............................ -- -- 22,000 562 RSP contributions.......................... -- -- (4,000) (89) Balance, November 30, 1994................. 960,000 24,000 130,000 3,262 Shares redeemed............................ -- -- 29,000 720 RSP contributions.......................... -- -- (8,000) (197) Balance, November 30, 1995................. 960,000 $24,000 151,000 $ 3,785
24 In September 1993, the Company issued an additional 1,283,000 shares of common stock through a private placement offering, resulting in net proceeds of approximately $11,485. On July 10, 1989, the Company sold 960,000 shares of convertible cumulative preferred stock to the Trust of the Company's Retirement Savings Plan (RSP) at the liquidation value of $25 per share or $24,000. The preferred shares have a dividend rate of 7.75%. The Trustee, who holds the preferred shares, may elect to convert each preferred share to one common share in the event of redemption by Tokheim, certain consolidations or mergers of Tokheim, or a redemption by the Trustee which is necessary to provide for distributions under the RSP. A participant may elect to receive a distribution from the RSP in cash or common stock. If redeemed by the Trustee, the Company is responsible for purchasing the preferred shares at the $25 floor value. The Company may elect to pay the redemption price in cash or an equivalent amount of common stock. At November 30, 1995, the difference between the $25 floor value and the market value of the underlying common stock aggregated $6,723. 8. EARNINGS PER SHARE Primary earnings per share are based on the weighted average number of shares outstanding during each year and the assumed exercise of dilutive employees' stock options less the number of treasury shares assumed to be purchased from the proceeds using the average market price of the Company's common stock. The following table presents information necessary to calculate earnings (loss) per share for fiscal years ended November 30, 1995, 1994, and 1993: Primary ------------------------------------ 1995 1994 1993 -------- ------- -------- Shares outstanding (in thousands): Weighted average outstanding.......................... 7,893 7,801 6,891 Share equivalents..................................... 18 -- 49 Adjusted outstanding.................................. 7,911 7,801 6,940 Net earnings (loss): Before cumulative effect of change in method of accounting..................................... $ 2,876 $ 1,862 $(5,867) Cumulative effect of change in method of accounting for postretirement benefits other than pensions... -- (13,416) -- Net earnings (loss)................................... 2,876 (11,554) (5,867) Preferred stock dividends............................. (1,580) (1,617) (1,663) Earnings (loss) applicable to common stock............ $ 1,296 $(13,171) $(7,530) Net earnings (loss) per common share: Before cumulative effect of change in method of accounting........................................ $ .16 $ .03 $ (1.09) Cumulative effect of change in method of accounting for postretirement benefits other than pensions... -- (1.72) -- Net earnings (loss)................................... $ .16 $ (1.69) $ (1.09)
25 For 1994 and 1993, fully diluted earnings per share is considered to be the same as primary earnings per share, since the effect of certain potentially dilutive securities would be antidilutive. Fully Diluted --------------------------------------- 1995 1994 1993 -------- -------- -------- Shares outstanding (in thousands): Weighted average outstanding.......................... 7,893 7,801 6,891 Share equivalents..................................... 18 -- 49 Weighted conversion of preferred stock................ 1,909 -- -- Adjusted outstanding.................................. 9,820 7,801 6,940 Net earnings (loss): Before cumulative effect of change in method of accounting........................................ $ 2,876 $ 1,862 $(5,867) Cumulative effect of change in method of accounting for postretirement benefits other than pensions... -- (13,416) -- Net earnings (loss)................................... 2,876 (11,554) (5,867) Incremental RSP expense............................... (1,580) (1,617) (1,663) Earnings (loss) applicable to common stock............ $ 1,296 $(13,171) $(7,530) Net earnings (loss) per common share: Before cumulative effect of change in method of accounting........................................ $ .13 $ 0.03 $ (1.09) Cumulative effect of change in method of accounting for postretirement benefits other than pensions... -- (1.72) -- Net earnings (loss).................................... $ .13 $ (1.69) $ (1.09)
9. FOREIGN CURRENCY TRANSLATION ADJUSTMENTS Consolidated foreign currency translation adjustments are as follows: 1995 1994 -------- -------- Foreign currency translation adjustments, beginning of year............................ $ (3,543) $ (4,037) Current year adjustments....................... 1 494 Foreign currency translation adjustments, end of year.................................. $ (3,542) $ (3,543) The adjustments represent principally the effect of changes in the current rate of exchange from the beginning of the year to the end of the year in translating the net assets, including certain intercompany amounts of foreign subsidiaries. 26 10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly financial information for 1995 and 1994 is as follows: 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- --------- 1995 - ------- Net sales............................................ $45,845 $54,127 $52,935 $68,666 $221,573 Cost of products sold*............................... 36,413 40,554 40,577 49,785 167,329 Net earnings (loss).................................. (1,363) 526 (941) 4,654 2,876 Earnings (loss) per share: Primary: Net earnings (loss)............................. (.22) .02 (.17) .54 .16 Fully diluted: Net earnings (loss)............................. (.22) .01 (.17) .42 .13 1994 - -------- Net sales............................................ $45,236 $49,908 $47,931 $59,059 $202,134 Cost of products sold*............................... 34,511 37,246 37,610 45,285 154,652 Earnings (loss) before cumulative effect of change in accounting........................... 155 1,151 (1,473) 2,029 1,862 Cumulative effect of change in method of accounting for postretirement benefits other than pensions............................... (13,416) -- -- -- (13,416) Net earnings (loss).................................. (13,261) 1,151 (1,473) 2,029 (11,554) Earnings (loss) per share: Primary: Before cumulative effect of change in accounting................................. (.03) .10 (.24) .21 .03 Cumulative effect of change in method of accounting for postretirement benefits other than pensions.................. (1.73) -- -- -- (1.72) Net earnings (loss).............................. (1.76) .10 (.24) .21 (1.69) Fully diluted: Before cumulative effect of change in accounting................................. (.03) .08 (.24) .17 .03 Cumulative effect of change in method of accounting for postretirement benefits other than pensions.................. (1.73) -- -- -- (1.72) Net earnings (loss).............................. (1.76) .08 (.24) .17 (1.69)
* Includes product development expenses and excludes depreciation and amortization. 27 11. INCOME TAXES Effective December 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the Company's financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Financial statements for the prior years have not been restated as the cumulative effect of the accounting change was not material to net earnings. Earnings (loss) before income taxes consist of the following: 1995 1994 1993 -------- -------- -------- Domestic............................................... $ 8,591 $ 6,456 $ (5,842) Foreign................................................ (5,676) (4,337) 97 $ 2,915 $ 2,119 $ (5,745) Income tax provision (benefit) consists of the following: 1995 1994 1993 -------- -------- -------- Current: Federal............................................. $ (272) $ -- $ -- State............................................... 249 673 723 Foreign............................................. 132 409 49 Deferred: Foreign............................................. (70) (825) (650) $ 39 $ 257 $ 122
A reconciliation of the reported tax expense and the amount computed by applying the statutory United States federal income tax rate of 35% for November 30, 1995 and 34% for November 30, 1994 and 1993 to earnings before income taxes is as follows: 1995 1994 1993 -------- -------- -------- Computed "expected" tax expense (benefit).............. $ 1,020 $ 721 $(1,953) Increase (decrease) in taxes resulting from: State income taxes net of federal tax benefit....... 162 444 477 Tax effect of dividends paid on stock held in Retirement Savings Plan (RSP).................... (553) (550) (565) Settlement of prior income tax returns and adjustments to prior year accruals............... (599) 237 -- Difference in foreign and U.S. tax rates............ (6) (104) (37) Decrease in valuation allowance..................... (2,099) (1,492) -- Earnings with no current tax benefit(expense): Domestic......................................... -- -- 1,339 Foreign.......................................... 1,985 1,089 (219) Repatriation of foreign earnings.................... 41 (162) 677 Miscellaneous items, net............................ 88 74 403 $ 39 $ 257 $ 122
28 Prior to the change in accounting method, the nature of temporary differences giving rise to deferred income taxes (benefit) and the tax effect of each during 1993 was as follows: 1993 -------- Federal: Depreciation..................................... $ 149 Warranty costs................................... (14) Provision for doubtful accounts.................. 38 Pension costs.................................... (37) Inventory reserves............................... (717) Insurance reserves............................... (54) Restructuring charge............................. 1,060 Software development costs....................... (112) Other............................................ (313) Deferred federal income taxes (benefit) from continuing operations.................... $ -- Foreign: Repatriation of foreign earnings................. $ (500) Other............................................ (150) $ (650) The components of the deferred tax asset and liability as of November 30, 1995 and 1994 were as follows: 1995 1994 -------- -------- Gross deferred tax assets: Accounts receivable.............................. $ 187 $ 322 Employee compensation and benefit accruals....... 6,198 5,949 Workers' compensation and other claims........... 153 215 Other............................................ 58 184 Warranty accrual................................. 946 818 EPA accrual...................................... 315 308 Net operating loss carryforwards................. 9,430 12,171 General business credit.......................... 295 5 Valuation allowance.............................. (15,654) (17,753) Total deferred tax asset...................... $ 1,928 $ 2,219 Gross deferred tax liabilities: Property, plant, and equipment................... $ 1,424 $ 1,479 Pension assets................................... 253 151 Inventory........................................ (217) 201 Investment in property........................... 214 208 Foreign earnings not permanently invested........ 202 161 Foreign exchange................................. 236 236 Export sales provision........................... 623 574 Total deferred tax liability.................. 2,735 3,010 Net deferred tax liability.......................... $ (807) $ (791) For domestic federal income tax purposes, the Net Operating Loss (NOL) carryover amounts to $26,942 and will expire from 2006 to 2008. For purposes of the Alternative Minimum Tax (AMT), the NOL carryover is $13,626 and the credit carryforwards total $295. 29 12. GEOGRAPHICAL SEGMENTS Domestic and foreign operations information for 1995, 1994, and 1993 is as follows: 1995 1994 1993 -------- -------- -------- Net sales -- unaffiliated customers: Domestic............................ $126,738 $119,774 $ 99,317 Export.............................. 36,238 28,848 25,036 Foreign: Europe..................... 35,829 34,534 22,858 Other...................... 22,768 18,978 25,095 $221,573 $202,134 $172,306 Inter-area sales eliminations: Domestic............................ $ 17,732 $ 16,904 $ 11,098 Foreign, principally Europe......... $ 47 $ 207 $ 120 Operating income (loss): Domestic............................ $ 9,296 $ 7,495 $ (3,797) Foreign: Europe..................... (4,232) (2,971) (1,025) Other...................... (381) (882) 1,393 Adjustments and eliminations........ 1,442 1,314 1,603 $ 6,125 $ 4,956 $ (1,826) Identifiable assets: Domestic............................ $107,445 $ 94,466 $102,743 Foreign: Europe..................... 22,914 25,189 21,090 Other...................... 14,071 13,102 12,776 Adjustments and eliminations........ (23,198) (19,252) (19,544) $121,232 $113,505 $117,065 The Company's foreign operations are located in Canada, Germany, The Netherlands, Scotland, and South Africa. A substantial amount of European sales to unaffiliated customers are made to geographical areas outside of Europe. Transfers between geographical areas are at cost plus an incremental amount intended to provide a reasonable profit margin to the selling enterprises. Amounts relating to foreign operations included in the consolidated financial statements are as follows: 1995 1994 1993 -------- -------- -------- Working capital....................... $ 14,717 $ 14,828 $ 15,982 Property, plant, and equipment (net) and other..................... 5,997 5,717 5,187 Noncurrent liabilities................ (12,666) (6,683) (3,128) Net foreign assets.................... $ 8,048 $ 13,862 $ 18,041 Net earnings (loss) of foreign operations.......................... $ (5,620) $ (4,438) $ 161 13. ALLOWANCE FOR DOUBTFUL ACCOUNTS Changes in the allowance for doubtful accounts are as follows: 1995 1994 1993 -------- -------- -------- Balance, beginning of year............ $ 1,295 $ 1,267 $ 1,795 Charged to operations................. 367 291 381 Uncollectible accounts written off, less recoveries................ (519) (278) (879) Foreign currency translation adjustments......................... 7 15 (30) Balance, end of year.................. $ 1,150 $ 1,295 $ 1,267 30 14. RETIREMENT PLANS The Company and its subsidiaries have several retirement plans covering most of their employees, including certain employees in foreign countries. Charges to operations for the cost of the Company's retirement plans including the Retirement Savings Plan (RSP) were $3,054 in 1995; $2,421 in 1994; and $2,675 in 1993. Defined Benefit Plans (U.S.) -- The Company maintains two noncontributory defined benefit pension plans which cover certain union employees. The Company's funding to the plans is equal to the minimum contribution required by the Internal Revenue Code. The benefits are based upon a fixed benefit rate and years of service. Future benefits under these plans were frozen as of December 31, 1990. The participants under these plans became eligible to participate in the Retirement Savings Plan (RSP) beginning January 1, 1991. The following table sets forth the aggregate defined benefit plans' funded status and amounts reflected in the accompanying consolidated balance sheets as of November 30, 1995 and 1994: Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets 1995 1994 1995 1994 -------- -------- -------- -------- Actuarial present value of accumulated plan benefits: Vested....................................... $ 1,599 $ 1,196 $ 10,226 $ 8,720 Nonvested.................................... 57 -- 769 -- Accumulated benefit obligations.............. $ 1,656 $ 1,196 $ 10,995 $ 8,720 Projected benefit obligations.................... $ 1,656 $ 1,196 $ 10,995 $ 8,720 Plan assets at fair value, principally common stocks, bonds, and GIC funds, including $409 in 1995 and $437 in 1994 of the Company's common stock....................... 1,924 1,765 7,325 6,790 Plan assets in excess of (less than) projected benefit obligations.......................... 268 569 (3,670) (1,930) Unrecognized net loss............................ 516 189 4,002 2,063 Unrecognized net assets at December 1, 1991 and 1990 being recognized over 15 years..................................... (260) (288) (134) (157) Adjustment required to recognize minimum liability................. -- -- (3,868) (1,906) Prepaid pension cost (pension liability) recognized in the consolidated balance sheet........................................ $ 524 $ 470 $ (3,670) $ (1,930)
The net periodic pension expense amounts were based on actuarial assumptions as follows: 1995 1994 1995 1994 ---- ---- ---- ---- Discount rate on plan liabilities. 7.00% 8.50% 7.00% 8.50% Rate of return on plan assets. . . 8.00% 8.00% 8.00% 8.00% 31 In accordance with Statement of Financial Accounting Standards (SFAS) No. 87, "Employers' Accounting for Pensions," the Company has recorded an additional minimum pension liability for the underfunded plan of $3,868 and $1,906 at November 30, 1995 and 1994, respectively, representing the excess of unfunded accumulated benefit obligations over previously recorded pension cost liabilities. The net periodic pension cost of U.S. defined benefit plans for 1995, 1994, and 1993 includes the following components: 1995 1994 1993 -------- -------- -------- Interest cost on projected benefit obligations.................. $ 857 $ 849 $ 851 Return on plan assets.................. (1,138) 82 (896) Net amortization and deferral.......... 558 (625) 335 Net periodic pension expense........... $ 277 $ 306 $ 290 The Company's foreign retirement plans are an insignificant portion of the Company's total retirement plans and are not required to report to certain governmental agencies pursuant to ERISA. These plans do not otherwise determine actuarial value of accumulated benefits or net assets available for benefits and are omitted from the above table. Defined Contribution Plan (U.S.) -- The RSP covers substantially all employees of Tokheim and its U.S. subsidiary. Through the RSP, employee ownership of the Company is increased approximately 11%. The RSP includes a common stock ESOP and a preferred stock ESOP which provide a retirement contribution of 1.5% of salary to all employees in the plan and a matching contribution of at least two- thirds of the first 6% of employee contributions. The matching contribution can increase to 150% of the first 6% of contributions, depending on the performance of the Company. The number of preferred shares in the RSP at November 30, 1995 and 1994 was 808,620 and 829,534, respectively, at a cost of $25 per share. The number of common shares in the RSP at November 30, 1995 and 1994 was 145,545 and 153,478, respectively, at an average cost of $21.09 and $21.05 per share. The dividend yield on the preferred stock is 7.75%, and the conversion rate is one share of preferred stock to one share of common stock. Each year, approximately 8% of the preferred stock held by the plan is allocated to participants' accounts. The Company has guaranteed the RSP loans as described in Note 4. A like amount entitled "Guaranteed Employees' Stock Ownership Plan (RSP) obligation" is recorded as a reduction of stockholders' equity. As the Company makes contributions to the RSP, these contributions, plus the dividends paid on the Company's preferred and common stock held by the RSP, are used to repay the loans. As the principal amounts of the loans are repaid, the "Guaranteed Employees' Stock Ownership Plan (RSP) obligation" in the equity and liability sections of the balance sheet is reduced accordingly. Company contributions in excess of dividends are allocated to interest and compensation expense on a basis proportional to the required debt service on RSP loans. Amounts allocated to interest expense were $832, $746, and $887 for 1995, 1994, and 1993, respectively. The table below sets forth the interest expense, the amounts contributed to the RSP (excluding preferred stock dividends), and the amount of dividends on preferred stock used for debt service by the RSP: 1995 1994 1993 -------- -------- -------- Interest expense incurred by the Plan Trust(s) on RSP debt..................... $1,265 $1,367 $1,595 Company contributions to the RSP............ 2,300 1,719 2,030 Dividends on preferred stock used for debt service by the RSP....................... 1,580 1,617 1,663 32 15. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides defined benefit postretirement health and life insurance benefits to most of its U.S. employees. Covered employees become eligible for these benefits at retirement after meeting minimum age and service requirements. Effective December 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires that the costs of future benefits be accrued during an employee's active working career. The cost of providing these benefits was previously recognized as claims were incurred. The Company continues to fund benefits on a pay-as-you-go basis, with some retirees paying a portion of the costs. The Company recorded the discounted value of expected future benefits earned as of December 1, 1993 as a cumulative effect of accounting change. This one-time, noncash accounting change resulted in a charge to earnings of $13,416, or $1.72 per share. Due to the Company's net operating loss carryforward position (see Note 11), the Company established a valuation allowance to offset the deferred tax asset created by this charge to operations. The accumulated postretirement benefit obligation as of November 30, 1995 and 1994 consisted of unfunded obligations related to the following: 1995 1994 -------- -------- Retirees and dependents........................ $ 8,333 $ 4,903 Fully eligible active plan participants........ 1,114 1,274 Other active plan participants................. 5,631 6,935 Total accumulated postretirement benefit obligation...................... 15,078 13,112 Unrecognized net gain (loss)................... (309) 1,101 Accrued postretirement benefit cost............ 14,769 14,213 Less current portion........................... (887) (701) $ 13,882 $ 13,512 Net postretirement benefit cost for 1995 and 1994 includes the following components: 1995 1994 -------- -------- Service cost................................... $ 422 $ 582 Interest cost on accumulated postretirement benefit obligation.......................... 1,034 916 Amortization (gain) loss....................... (25) -- Net postretirement benefit cost...... $ 1,431 $ 1,498 The assumptions used to develop the net postretirement benefit expense and the present value of benefit obligations are as follows: 1995 1994 -------- -------- Discount rate.................................... 7.00% 8.50% Health care cost trend rate for the next year.... 10.00% 11.00% The health care cost trend rate used to value the accumulated postretirement benefit obligation is assumed to decrease gradually to an ultimate rate of 5% in 2005. A 1% increase in this annual trend rate would increase the accumulated postretirement benefit obligation as of November 30, 1995 by approximately $2,063 and the combined service and interest components of the annual net postretirement health care cost by approximately $263. 33 16. CONTINGENT LIABILITIES The Company is defending various claims and legal actions, including environmental actions, which are common to its operations. These legal actions primarily involve claims for damages arising out of the Company's manufacturing operations, the use of the Company's products, and allegations of patent infringement. Environmental Matters -- Total amounts included in accrued expenses related to environmental matters were $872 and $847 at November 30, 1995 and 1994, respectively. The Company has been designated as a "potentially responsible party" (PRP), in conjunction with other parties, in five governmental actions associated with hazardous waste sites falling under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA). Such actions seek recovery of certain cleanup costs. Dates upon which the Company received notice as a PRP range from January 1988 to January 1992. The Company has attempted, where possible, to develop a reasonable estimate of the cost or range of costs which may accrue from these actions. Likewise, the Company has attempted, where possible, to assess the likelihood of an unfavorable outcome to the Company as a result of these actions. Legal counsel has been retained to assist the Company in making these determinations, and cleanup costs are accrued when an unfavorable outcome is determined to be probable and a reasonable estimate can be made. The Company is a "de minimis" party in two of these sites. One matter was settled for $14. The second matter will cost the Company approximately $6 for its share of the pro rated clean up costs. During 1995, the Company settled two additional actions with the Environmental Protection Agency (EPA). One matter the Company settled in the amount of $627 as part of a global settlement with other PRPs and has recorded the liability in full at November 30, 1995. The accrued amount will be paid over a two year period. In the other settlement, the Company has settled as a participating generator as part of a global settlement. The Company paid $192 as part of its past costs and operating maintenance of the site. The Company provided a letter of credit in the amount of $148 to cover its projected future costs. With respect to the fifth site, involving potential groundwater contamination, the Company and other PRPs are negotiating with the EPA as to the testing to be performed on the property to determine if contamination has occurred; and, if so, the specific tracts of property affected. The Company cannot determine the extent of its liability in the event its property is deemed to be contaminated; and the method of allocation of liability, if any, among the PRPs who may ultimately be found liable remains uncertain. The Company is also involved in one lawsuit with respect to environmental liabilities under an indemnity provision of a sale agreement concerning the sale of a subsidiary die casting facility to a third party. The Company believes it has fulfilled its obligations under the sale agreement and it cannot at this time quantify the liabilities that are alleged in the litigation. Product Liability and Other Matters -- The Company is subject to various other legal actions arising out of the conduct of its business, including those relating to product liability, patent infringement, and claims for damages alleging violations of federal, state, or local statutes or ordinances dealing with civil rights. Total amounts included in accrued expenses related to these actions were $156 and $265 at November 30, 1995 and 1994, respectively. In the opinion of management of the Company, amounts accrued for awards or assessments in connection with these matters are adequate and ultimate resolution of these matters will not have a material effect on the Company's consolidated financial position, results of operations, or cash flow. 34 INDEPENDENT ACCOUNTANTS' REPORT To the Stockholders and Directors, Tokheim Corporation: We have audited the accompanying consolidated balance sheets of Tokheim Corporation and Subsidiaries as of November 30, 1995 and 1994, and the related consolidated statements of earnings and retained earnings, and cash flows for each of the three years in the period ended November 30, 1995. These 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 consolidated financial position of Tokheim Corporation and Subsidiaries as of November 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Wayne, Indiana January 24, 1996 35 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. DIRECTORS OF THE REGISTRANT The information required by this Item is set forth on page 1 through 4 in the registrant's Proxy Statement for the 1995 Annual Meeting of Stockholders, which information is incorporated herein by reference. EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to item 401 of Regulation S-K, the following information is presented herein in lieu of presenting such information in a definitive Proxy Statement to be filed as described under Part III. The names, ages, and positions of all of the executive officers of the Company are listed below along with their business experience during the past five years. Officers are appointed annually by the Board of Directors at the meeting of Directors immediately following the Annual Meeting of Stockholders. There are no family relationships among any of the officers of the Company, nor any arrangement or understanding between any such officer and any other person pursuant to which he was elected as an officer. NAME, AGE AND POSITION BUSINESS EXPERIENCE DURING PAST 5 YEARS - ------------------------------- ------------------------------------------- GERALD H. FRIELING, JR., 65 Elected Chairman of the Board in 1991; Chairman of the Board during the last 5 years, also served as Chief Executive Officer of the Company. DOUGLAS K. PINNER, 55 Joined Tokheim as President and Chief President and Chief Executive Officer in 1992; during the last Executive Officer 5 years, also served as President of Slater Steels Fort Wayne Specialty Alloys. WILLIAM M. ANDERSON, 49 Elected Vice President, Planning and Vice President, Planning Human Resources in 1995; during the and Human Resources last 5 years, also served as Vice President, Human Resources, of the Company and as Senior Vice President of NordicTrack, Inc. and as Director, Total Quality Management/ Human Resources of FMC Corporation. CONDELL B. ELLIS, 63 Elected Vice President, Domestic Sales in Vice President, 1995; during the last 5 years, also served Domestic Sales as Vice President, Sales, of CANMAX; served in various executive sales officer positions of Tokheim Corporation; and as Vice President, Sales, Wayne Division of Dresser Industries, Inc. 36 NAME, AGE, AND POSITION BUSINESS EXPERIENCE DURING PAST 5 YEARS - ------------------------------- ------------------------------------------- TERRY M. FULMER, 52 Elected Vice President, Global Vice President, Manufacturing in 1995; during the last 5 Global Manufacturing years, also served as Vice President, Corporate Operations and Planning; Vice President, Corporate Planning; General Manager, Small Pumps Division; and Manager of Manufacturing, Newbern Plant of the Company. JOHN A. NEGOVETICH, 50 Joined Tokheim as Vice President and Vice President and Chief Financial Officer in 1995; during Chief Financial Officer during last 5 years, also served as Vice President, Finance, Chief Financial Officer and Director of Ardco, Inc. and as Vice President, Finance, Hawker Siddeley, Inc. ARTHUR C. PREWITT, 54 Elected Vice President, Technology and Vice President, Technology Venture Development in 1995; during the and Venture Development last five years, also served as Vice President, Technology; Vice President, Corporate Engineering and Marketing; and Vice President, Product Engineering, of the Company; and as Manager, Technical Products of Gilbarco, Inc. NORMAN L. ROELKE, 46 Elected Vice President, Secretary and Vice President, Secretary General Counsel in 1995; during the last and General Counsel 5 years, also served as Vice President and General Counsel and as Corporate Counsel of the Company. SCOTT A. SWOGGER, 43 Elected Vice President, Quality Systems Vice President in 1995; during the last 5 years, also Quality Systems served as Director, Quality Assurance, of the Company; Corporate Quality Engineer and Senior Quality Engineer of DePuy, Inc.; and as Senior Manager, Quality Assurance of Tokheim Corporation. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive (and certain other) officers, and persons who own more than 10% of the Company's common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange. Directors, officers, and greater-than-10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on review of copies of such forms furnished to the Company, or written representations that no Forms 5 were required, the Company believes that during fiscal year 1995 all Section 16(a) filing requirements applicable to its directors, officers and greater-than-10% stockholders were held in compliance. 37 ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is set forth on page 4 through 6 in the registrant's Proxy Statement for the 1995 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item is set forth on page 9 through 11 in the registrant's Proxy Statement for the 1995 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item is set forth on page 9 through 11 in the registrant's Proxy Statement for the 1995 Annual Meeting of Stockholders, which information is incorporated herein by reference. 38 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. FINANCIAL STATEMENTS: Included as outlined in Item 8 of Part II of this report: Consolidated Statement of Earnings and Retained Earnings for each of the three years in the period ended November 30, 1995..... Page 14 Consolidated Statement of Cash Flows for each of the three years in the period ended November 30, 1995....................... Page 15 Consolidated Balance Sheet as of November 30, 1995 and 1994....... Page 16 Notes to Consolidated Financial Statements........................ Page 18 Report of Independent Accountants................................. Page 35 (a) 2. SUPPLEMENTARY DATA AND FINANCIAL STATEMENT SCHEDULES: Included as outlined in Item 8 of Part II of this report: Quarterly Financial Information (Unaudited) in Note 10 to the Consolidated Financial Statements................................. Page 27 There are no schedules included in Part IV of this report as they are not required, are not applicable, or the information is shown in the Notes to the Consolidated Financial Statements. (a) 3. EXHIBITS: (11) Details supporting the computation of primary and fully diluted earnings per share............................ Page 41 (21) Subsidiaries of the Registrant.............................. Page 43 (23) Consents of Experts and Counsel............................. Page 44 (27) Financial Data Schedule..................................... Page 45 (b) REPORTS ON FORM 8-K: None. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. February 23, 1996 TOKHEIM CORPORATION (Registrant) By: DOUGLAS K. PINNER ---------------------- President and Chief Executive Officer By: JOHN A. NEGOVETICH ----------------------- Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. DOUGLAS K. PINNER President and Chief February 23, 1996 - ----------------------- Executive Officer GERALD H. FRIELING, JR. Chairman of the Board February 23, 1996 - ----------------------- WALTER S. AINSWORTH Director February 23, 1996 - ----------------------- ROBERT M. AKIN, III Director February 23, 1996 - ----------------------- JAMES K. BAKER Director February 23, 1996 - ----------------------- BERNARD D. COOPER Director February 23, 1996 - ----------------------- DR. WINFRED M. PHILLIPS Director February 23, 1996 - ----------------------- IAN M. ROLLAND Director February 23, 1996 - ----------------------- RICHARD W. HANSEN Director February 23, 1996 - ----------------------- 40 TOKHEIM CORPORATION AND SUBSIDIARIES EXHIBIT (11) - EARNINGS PER SHARE FOR THE YEARS ENDED NOVEMBER 30, 1995, 1994, AND 1993 (Amounts in thousands except amounts per share) Primary earnings per share are based on the weighted average number of shares outstanding during each year and the assumed exercise of dilutive stock options less the number of treasury shares assumed to be purchased from the proceeds using the average market price of the Company's common stock. The following table presents information necessary to calculate earnings per share for fiscal years ended November 30, 1995, 1994, and 1993: Primary ------------------------------ 1995 1994 1993 -------- -------- -------- Shares outstanding: Weighted average outstanding............ 7,893 7,801 6,891 Share equivalents....................... 18 -- 49 Adjusted outstanding.................... 7,911 7,801 6,940 Earnings (loss): Continuing operations before cumulative effect of change in accounting...... $ 2,876 $ 1,862 $(5,867) Cumulative effect of change in method of accounting for postretirement benefits other than pensions.......... -- (13,416) -- Net earnings (loss)..................... 2,876 (11,554) (5,867) Preferred stock dividends............... (1,580) (1,617) (1,663) Earnings (loss) applicable to common stock.......................... $ 1,296 $(13,171) $(7,530) Earnings (loss) per common share: Continuing operations before cumulative effect of change in accounting........ $ .16 $ .03 $ (1.09) Cumulative effect of change in method of accounting for postretirement benefits other than pensions.......... -- (1.72) -- Net earnings (loss) per common share.... $ .16 $ (1.69) $ (1.09) 41 TOKHEIM CORPORATION AND SUBSIDIARIES EXHIBIT (11) - EARNINGS PER SHARE FOR THE YEARS ENDED NOVEMBER 30, 1995, 1994, AND 1993 (CONTINUED) (Amounts in thousands except amounts per share) For 1995, 1994, and 1993, fully diluted earnings per share is considered to be the same as primary earnings per share, since the effect of certain potentially dilutive securities would be antidilutive. Fully Diluted ---------------------------------- 1995 1994 1993 -------- -------- -------- Shares outstanding: Weighted average outstanding............ 7,893 7,801 6,891 Share equivalents....................... 18 60 49 Weighted conversion of preferred stock.. 1,909 1,362 1,296 Adjusted outstanding.................... 9,820 9,223 8,236 Earnings (loss): Continuing operations before cumulative effect of change in accounting........ $ 2,876 $ 1,862 $ (5,867) Cumulative effect of change in method of accounting for postretirement benefits other than pensions.......... -- (13,416) -- Net earnings (loss)..................... 2,876 (11,554) (5,867) Incremental RSP expense................. (1,580) (1,617) (1,663) Earnings (loss) applicable to common stock.......................... $ 1,296 $(13,171) $ (7,530) Earnings (loss) per common share: Continuing operations before cumulative effect of change in accounting........ $ 0.13 $ 0.03 $ (0.91) Cumulative effect of change in method of accounting for postretirement benefits other than pensions.......... -- (1.45) -- Net earnings (loss) per common share.... $ 0.13 $ (1.42) $ (0.91) 42 TOKHEIM CORPORATION AND SUBSIDIARIES EXHIBIT (21) - SUBSIDIARIES OF THE REGISTRANT NOVEMBER 30, 1995 The Company has no corporate parent. Tokheim Corporation, an Indiana corporation, owns all of the issued and outstanding stock of each of the following corporations: STATE OR COUNTRY SUBSIDIARY OF INCORPORATION ------------------------------------------- ---------------- Tokheim GmbH Germany Tokheim Investment Corporation Texas In addition, Tokheim Investment Corporation owns all of the issued and outstanding stock (other than directors' qualifying shares, if any, with respect to certain foreign subsidiaries) of each of the following corporations, except as noted: STATE OR COUNTRY SUBSIDIARY OF INCORPORATION ------------------------------------------- ---------------- Sunbelt Hose & Petroleum Equipment, Inc. (A) Georgia Tokheim and Gasboy of Canada Limited (B) Canada Tokheim Europe B.V. The Netherlands Tokheim Limited Scotland Tokheim South Africa (Proprietary) Limited (C) South Africa Tokheim Properties (Proprietary) Limited (C) South Africa Gasboy International, Inc. Pennsylvania (A) In February 1990, the Company sold substantially all of the assets of this subsidiary. (B) Owned 35% by Gasboy International, Inc. and 65% by Tokheim Investment Corporation. (C) Owned 100% by Tokheim and Gasboy of Canada Limited. 43 TOKHEIM CORPORATION AND SUBSIDIARIES EXHIBIT (23) - CONSENTS OF EXPERTS AND COUNSEL NOVEMBER 30, 1995 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the Incorporation by Reference in the registration statement of Tokheim Corporation on Form S-8 (file No. 1-6018) of our report dated January 24, 1996, on our audits of the consolidated financial statements of Tokheim Corporation and Subsidiaries as of November 30, 1995 and 1994, and for the years ended November 30, 1995, 1994, and 1993, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Fort Wayne, Indiana February 23, 1996 44 EX-27 2
5 This schedule contains summary financial information extracted from Tokheim Corporation's November 30, 1995, annual financial statements and is qualified in its entirety by reference to such financial statements. 0000098559 TOKHEIM CORPORATION 1000 12-MOS NOV-30-1995 NOV-30-1995 2966 0 46799 1150 34995 86798 86032 57474 121232 39545 0 6426 0 18392 2305 121232 221573 221573 167329 167329 0 0 2815 2915 39 2876 0 0 0 2876 0.16 0.13 Represents gross inventory net of LIFO and loss reserves. Represents gross PP&E. Represents redeemable preferred stock of $24,000 less Guaranteed ESOP of $13,790 and treasury stock of $3,784. Represents common stock of $19,409 less Guaranteed ESOP of $786 and treasury stock of $231. Represents retained earnings of $9,715 less minimum pension liability of $3,868 and foreign currency translation adjustments of $3,542. Includes product development expenses and excludes depreciation and amortization. 45
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