FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
Commission file number 1-5318
KENNAMETAL INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0900168
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
ROUTE 981 AT WESTMORELAND COUNTY AIRPORT
P.O. BOX 231
LATROBE, PENNSYLVANIA 15650
(Address of registrant's principal executive offices)
Registrant's telephone number, including area code: (412) 539-5000
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
TITLE OF EACH CLASS OUTSTANDING AT OCTOBER 31, 1995
- ---------------------------------------- -------------------------------
Capital Stock, par value $1.25 per share 26,624,461
KENNAMETAL INC.
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1995
------------------------------------
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
- --------------------------------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 1995 and June 30, 1995
Condensed Consolidated Statements of Income (Unaudited)
Three months ended September 30, 1995 and 1994
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended September 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KENNAMETAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------
(in thousands)
September 30, June 30,
1995 1995
------------- ---------
ASSETS
Current Assets:
Cash and equivalents $ 12,636 $ 10,827
Accounts receivable, less allowance for
doubtful accounts of $12,067 and $12,106 167,143 175,405
Inventories 212,218 200,680
Deferred income taxes 22,262 22,362
-------- --------
Total current assets 414,259 409,274
-------- --------
Property, Plant and Equipment:
Land and buildings 152,651 151,905
Machinery and equipment 372,274 365,275
Less accumulated depreciation (262,266) (256,838)
-------- --------
Net property, plant and equipment 262,659 260,342
-------- --------
Other Assets:
Investments in affiliated companies 7,001 6,873
Intangible assets, less accumulated
amortization of $19,451 and $19,009 31,810 32,253
Deferred income taxes 51,273 56,629
Other 24,961 16,238
-------- --------
Total other assets 115,045 111,993
-------- --------
Total assets $791,963 $781,609
======== ========
LIABILITIES
Current Liabilities:
Current maturities of term debt
and capital leases $ 16,433 $ 17,475
Notes payable to banks 62,145 53,555
Accounts payable 57,479 60,211
Accrued vacation pay 18,116 18,424
Other 74,131 75,537
-------- --------
Total current liabilities 228,304 225,202
-------- --------
Term Debt and Capital Leases,
Less Current Maturities 78,177 78,700
Deferred Income Taxes 21,154 20,998
Other Liabilities 50,967 51,615
-------- --------
Total liabilities 378,602 376,515
-------- --------
Minority Interest in Consolidated Subsidiaries 13,861 13,209
SHAREHOLDERS' EQUITY
Shareholders' Equity:
Preferred stock, 5,000 shares authorized;
none issued - -
Capital stock, $1.25 par value; 70,000
shares authorized; 29,370 shares issued 36,712 36,712
Additional paid-in capital 86,285 85,768
Retained earnings 307,490 297,838
Treasury shares, at cost; 2,745 and
2,793 shares held (36,435) (36,737)
Cumulative translation adjustments 5,448 8,304
-------- --------
Total shareholders' equity 399,500 391,885
-------- --------
Total liabilities and shareholders' equity $791,963 $781,609
======== ========
See accompanying notes to condensed consolidated financial statements.
KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------
(in thousands, except per share data)
Three Months Ended
------------------
September 30,
1995 1994
-------- --------
OPERATIONS:
Net sales $254,903 $218,838
Cost of goods sold 148,461 128,051
-------- --------
Gross profit 106,442 90,787
Research and development expenses 4,964 4,419
Selling, marketing and distribution
expenses 59,375 50,768
General and administrative expenses 15,692 12,877
Amortization of intangibles 384 773
-------- --------
Operating income 26,027 21,950
Interest expense 2,939 3,474
Other income (expense) (249) 92
-------- --------
Income before taxes 22,839 18,568
Provision for income taxes 9,200 7,900
-------- --------
Net income $ 13,639 $ 10,668
======== ========
PER SHARE DATA:
Earnings per share $ 0.51 $ 0.40
======== ========
Dividends per share $ 0.15 $ 0.15
======== ========
Weighted average shares outstanding 26,597 26,390
======== ========
See accompanying notes to condensed consolidated financial statements.
KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------
(in thousands)
Three Months Ended
------------------
September 30,
1995 1994
------- -------
OPERATING ACTIVITIES:
Net income $13,639 $10,668
Adjustments for noncash items:
Depreciation and amortization 9,767 9,935
Other 2,970 227
Changes in certain assets and liabilities
net of effects from acquisitions:
Accounts receivable 2,537 (4,627)
Inventories (13,046) (10,463)
Accounts payable and accrued liabilities (4,848) (12,063)
Other 3,868 5,742
------- -------
Net cash flow from (used for) operating activities 14,887 (581)
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (18,030) (7,713)
Disposals of property, plant and equipment 1,008 1,040
Other (418) 555
------- -------
Net cash flow used for investing activities (17,440) (6,118)
------- -------
FINANCING ACTIVITIES:
Increase in short-term debt 8,498 24
Increase in term debt 1,041 2,288
Reduction in term debt (1,879) (1,831)
Dividend reinvestment and employee stock plans 819 2,299
Cash dividends paid to shareholders (3,987) (3,953)
------- -------
Net cash flow from (used for) financing activities 4,492 (1,173)
------- -------
Effect of exchange rate changes on cash (130) 126
------- -------
CASH AND EQUIVALENTS:
Net increase (decrease) in cash and equivalents 1,809 (7,746)
Cash and equivalents, beginning 10,827 17,190
------- -------
Cash and equivalents, ending $12,636 $ 9,444
======= =======
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 1,654 $ 2,294
Income taxes paid 4,995 1,627
See accompanying notes to condensed consolidated financial statements.
KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
1. The condensed consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements included
in the Company's 1995 Annual Report. The condensed consolidated balance
sheet as of June 30, 1995 has been derived from the audited balance
sheet included in the Company's 1995 Annual Report. These interim
statements are unaudited; however, management believes that all
adjustments necessary for a fair presentation have been made and all
adjustments are normal, recurring adjustments. The results for the
three months ended September 30, 1995 are not necessarily indicative of
the results to be expected for the full fiscal year.
2. Inventories are stated at lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for a significant portion of
domestic inventories and the first-in, first-out (FIFO) method or
average cost for other inventories. The Company used the LIFO method
of valuing its inventories for approximately 55 percent of total
inventories at September 30, 1995. Because inventory valuations under
the LIFO method are based on an annual determination of quantities and
costs as of June 30 of each year, the interim LIFO valuations are based
on management's projections of expected year-end inventory levels and
costs. Therefore, the interim financial results are subject to any
final year-end LIFO inventory adjustments.
3. The major classes of inventory as of the balance sheet dates were as
follows (in thousands):
September 30, June 30,
1995 1995
------------- ---------
Finished goods $157,072 $147,231
Work in process and powder blends 67,934 65,231
Raw materials and supplies 26,603 24,629
-------- --------
Inventory at current cost 251,609 237,091
Less LIFO valuation (39,391) (36,411)
-------- --------
Total inventories $212,218 $200,680
======== ========
4. The Company has been involved in various environmental cleanup and
remediation activities at several of its manufacturing facilities. In
addition, the Company has been named as a potentially responsible party
at four Superfund sites in the United States. However, it is
management's opinion, based on its evaluations and discussions with
outside counsel and independent consultants, that the ultimate
resolution of these environmental matters will not have a material
adverse effect on the results of operations, financial position or cash
flows of the Company.
The Company maintains a Corporate Environmental, Health and Safety
(EH&S) Department to ensure compliance with all environmental
regulations and to monitor and oversee remediation activities. In
addition, the Company has established an EH&S administrator at each of
its domestic manufacturing facilities. The Company's financial
management team periodically meets with members of the Corporate EH&S
Department and the Corporate Legal Department to review and evaluate the
status of environmental projects and contingencies. On a quarterly and
annual basis, management establishes or adjusts financial provisions and
reserves for environmental contingencies in accordance with Statement of
Financial Accounting Standards (SFAS) No. 5, "Accounting for
Contingencies."
5. Prior to its acquisition by the Company, a non-U.S. subsidiary recorded
sales of approximately $60 million in calendar 1993 under contracts
with a certain customer to provide various equipment, know-how and
training for a manufacturing facility. Upon the acquisition by the
Company, the subsidiary decided to complete performance under the
contracts with this customer but to not enter into any such contracts in
the future.
Pursuant to a United States embargo effective June 6, 1995, the
subsidiary suspended performance under the contracts pending issuance by
the U.S. government of definitive embargo regulations. Other than
finalizing the transfer of know-how and training to commence production,
performance was substantially completed prior to the suspension. The
estimated costs to complete performance are not material and were
accrued in the consolidated financial statements. The customer
disputed the suspension and advised that it might file suit to require
completion of performance as well as for compensation for alleged
damages. However, the subsidiary reinstituted performance following the
issuance of definitive embargo regulations in September of 1995.
Management believes that the ultimate resolution of this matter will not
have a material adverse impact on the financial position of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
There were no material changes in financial position, liquidity or capital
resources between June 30, 1995 and September 30, 1995. The ratio of current
assets to current liabilities was 1.8 as of September 30, 1995 and June 30,
1995. The debt to capital ratio (i.e., total debt divided by the sum of total
debt and shareholders' equity) was 28 percent as of September 30, 1995
unchanged from June 30, 1995.
Capital expenditures are estimated to be $60-70 million in fiscal year 1996.
Expenditures are being made to modernize facilities, upgrade machinery and
equipment, and acquire new information technology. Capital expenditures are
being financed with cash from operations and borrowings under existing
revolving credit agreements with banks.
RESULTS OF OPERATIONS
SALES AND EARNINGS
During the quarter ended September 30, 1995, consolidated sales were $255
million, up 16 percent from $219 million in the same quarter last year. The
increase in consolidated sales is attributable to an increase in sales volume
of 11 percent, modest price increases, newly-consolidated international
subsidiaries and favorable foreign currency translation effects. Excluding
favorable foreign currency translation effects, international sales increased
20 percent and continued to show strong demand in all end markets.
Net income for the September 1995 quarter was $13.6 million, or $0.51 per
share, as compared with net income of $10.7 million, or $0.40 per share in the
same quarter last year. Net income increased from higher sales of
metalcutting tools in North America and Europe, and the continued growth of
catalog sales.
The following table presents the Company's sales by product class and
geographic area (in thousands):
Quarter ended September 30,
1995 1994 % Change
---------- ---------- --------
Sales by Product Class:
Metalworking $216,947 $183,581 18.2
Mining and construction 30,240 28,367 6.6
Metallurgical 7,716 6,890 12.0
-------- --------
Net sales $254,903 $218,838 16.5
======== ========
Sales by Geographic Area:
Within the U.S. $154,940 $140,569 10.2
Foreign and export 99,963 78,269 27.7
-------- --------
Net sales $254,903 $218,838 16.5
======== ========
METALWORKING PRODUCTS
During the September 1995 quarter, worldwide sales of metalworking products
increased 18 percent from last year.
In the United States, direct sales of metalcutting inserts and toolholding
devices increased 5 percent. Total sales of industrial supply products
increased 24 percent as a result of increased sales through mail order
catalogs and full service supply programs.
International sales of metalworking products increased 27 percent from the
previous year primarily because of higher sales volume in Europe, the impact
of favorable foreign currency translation effects, and newly-consolidated
subsidiaries in Japan and China. Excluding the currency translation effect,
international metalworking sales increased an estimated 19 percent.
MINING AND CONSTRUCTION PRODUCTS
During the September 1995 quarter, sales of mining and construction tools
increased 7 percent from the previous year primarily because of additional
domestic demand for mining and construction tools. International sales of
highway construction and mining tools increased because of strong demand in
Canada and Europe.
METALLURGICAL PRODUCTS
During the September 1995 quarter, sales of metallurgical products increased
12 percent from the previous year primarily because of strong international
demand for carbide powders.
GROSS PROFIT
As a percentage of sales, gross profit for the September 1995 quarter was 41.8
percent as compared with 41.5 percent in the prior year. The gross profit
margin benefited from higher production levels, modest price increases and
favorable currency effects of international sales of products manufactured in
the United States. These benefits were largely offset by higher raw material
costs and reduced manufacturing efficiencies.
OPERATING EXPENSES
For the quarter ended September 30, 1995, operating expenses increased
18 percent primarily because of costs necessary to support the higher sales
levels, increased spending on research and development, marketing programs,
additional catalog branch openings and the implementation of new information
systems. As a percentage of sales, operating expenses increased slightly to
31.4 percent as compared with 31.1 percent in the prior year.
INCOME TAXES
The effective tax rate for the September 1995 quarter was 40.3 percent
compared with an effective tax rate of 42.5 percent in the prior year. The
effective tax rate decreased primarily because of lower estimated non-U.S.
taxes and additional benefits derived from the utilization of the foreign
sales corporation.
OUTLOOK
In looking to the second quarter ending December 31, 1995, management expects
consolidated sales to increase from the $230 million achieved in the same
quarter last year. Sales of metalworking products in the United States should
continue to benefit from full service supply programs and catalog sales as a
result of additional branch openings. In addition, international sales are
expected to increase as the European and Asia-Pacific economies continue to
expand. Sales of mining and construction tools should continue to increase
from additional international demand for highway construction and mining
tools.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 4 to the condensed consolidated
financial statements, contained in Part I, Item 1 of this Form 10-Q, is
incorporated by reference herein and supplements the information previously
reported in Part I, Item 3 of the Company's Form 10-K for the year
ended June 30, 1995, which is also incorporated by reference herein.
It is management's opinion, based on its evaluation and discussions with
outside counsel, that the Company has viable defenses to these cases and that,
in any event, the ultimate resolutions of these matters will not have a
materially adverse effect on the results of operations, financial position or
cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders on October 30, 1995, the stockholders
of the Company voted on the election of directors and independent auditors,
and for the approval of a new Performance Bonus Stock Plan. The following is
the number of shares voted in favor of and against each matter, and the number
of shares having authority to vote on each matter but withheld.
1. With respect to the votes cast for directors whose terms expire in 1998.
For Withheld Broker Non-Vote
---------- ---------- ---------------
A. Peter Held 22,374,882 79,286 0
Aloysius T. McLaughlin, Jr. 22,395,437 58,731 0
Larry Yost 22,156,926 297,242 0
2. With respect to the approval of the new Performance Bonus Stock Plan of 1995.
For Against Abstained Broker Non-Vote
---------- --------- --------- ---------------
Approval of Performance
Bonus Stock Plan of 1995 21,365,723 975,467 112,978 2,352,956
3. With respect to the election of the firm of Arthur Andersen LLP, independent
public accountants, to audit the financial statement of the Company and its
subsidiary companies for the fiscal year ending June 30, 1996.
For Against Abstained Broker Non-Vote
---------- --------- --------- ---------------
Arthur Andersen LLP 22,377,216 31,329 45,623 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reference
(a) Exhibits
(10.1) Performance Bonus Stock Plan of 1995 Filed herewith
(27) Financial Data Schedule Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KENNAMETAL INC.
Date: November 13, 1995 By: /s/ RICHARD J. ORWIG
-------------------------
Richard J. Orwig
Vice President
Chief Financial and Administrative Officer
5
1,000
3-MOS
JUN-30-1996
JUL-01-1995
SEP-30-1995
12,636
0
179,210
12,067
212,218
414,259
524,925
262,266
791,963
228,304
0
36,712
0
0
362,788
791,963
254,903
254,903
148,461
148,461
5,348
523
2,939
22,839
9,200
13,639
0
0
0
13,639
.51
.51
Kennametal Inc.
PERFORMANCE BONUS STOCK PLAN OF 1995
ARTICLE I
General Provisions
Section 1.1. ESTABLISHMENT AND PURPOSE. There is hereby established
the Kennametal Inc. (the "Corporation") Performance Bonus Stock Plan of 1995
(the "Plan") pursuant to which each participant in a Management Performance
Bonus Plan (as defined herein) shall be eligible: (a) to elect to receive
shares of the Corporation's capital stock, par value $1.25 per share (the
"Capital Stock"), in lieu of cash bonus compensation; and/or (b) through an
election to defer receipt of compensation to be earned by such participant
made under any Corporation deferred compensation plan or arrangement
("Deferred Compensation Plan"), to have Stock Credits (as hereinafter defined)
credited to an account ("Stock Credit Account") established for such
participant by the Corporation. The purposes of the Plan are to provide an
incentive to Corporation executives to increase their ownership of Capital
Stock and to promote this goal by establishing stock as an alternative method
by which managers and/or senior executives may elect to be compensated.
Section 1.2. DEFINITIONS. In addition to the terms previously or
hereafter defined herein, the following terms when used herein shall have the
meaning set forth below:
"Board" shall mean the Board of Directors of the Corporation.
"Bonus Compensation" shall mean all remuneration designated as bonus
compensation that is earned by a Participant (as defined below) pursuant to a
Management Performance Bonus Plan.
"Committee" shall mean the committee of the Board appointed by the Board
to administer the Plan. Unless otherwise determined by the Board, the
Committee shall be the Committee on Executive Compensation of the Board.
"Deferred Bonus Compensation" shall mean all Bonus Compensation that
is deferred by a Participant pursuant to a Deferred Compensation Plan.
"Fair Market Value" shall mean, as of any date, the average of the
highest and lowest sales prices for the Capital Stock as reported in the New
York Stock Exchange - Composite Transactions reporting system for the date in
question or, if no sales were effected on such date, on the next preceding
date on which sales were effected.
"Management Performance Bonus Plan" shall mean any performance-based
bonus compensation plan for management and/or senior executives of the
Corporation or its subsidiaries which the Committee has determined to be then
eligible for participation in the Plan.
"Non-Deferred Bonus Compensation" shall mean all Bonus Compensation that
is not deferred by a Participant pursuant to a Deferred Compensation Plan.
"Participant" shall mean any employee of the Corporation or any of its
subsidiaries who is eligible to participate in a Management Performance Bonus
Plan.
"Plan Year" shall mean the Corporation's fiscal year.
"Stock Credit" shall mean a credit that is equivalent to one share of
Capital Stock.
Section 1.3. ADMINISTRATION. The Plan shall be administered by the
Committee. The Committee shall serve at the pleasure of the Board. A
majority of the Committee shall constitute a quorum, and the acts of a
majority of the members of the Committee present at any meeting at which a
quorum is present, or acts approved in writing by a majority of the members of
the Committee, shall be deemed the acts of the Committee. The Committee is
authorized to interpret and construe the Plan, to make all determinations and
take all other actions necessary or advisable for the administration of the
Plan, and to delegate to employees of the Corporation or any subsidiary the
authority to perform administrative functions under the Plan.
Section 1.4. ELIGIBILITY. An individual who is a participant in a
Management Performance Bonus Plan shall be eligible to participate in the
Plan. Notwithstanding the foregoing, in the event that the Bonus Compensation
payable with respect to a Plan Year is less than One Thousand U.S. Dollars
($1,000), or the equivalent if payable in another currency, then such
individual shall not be eligible to participate in the Plan for such Plan Year
and any Bonus Compensation shall be paid in cash.
Section 1.5. CAPITAL STOCK SUBJECT TO THE PLAN. The maximum number of
shares of Capital Stock that may be issued pursuant to the Plan is 750,000.
Capital Stock to be issued under the Plan may be either authorized and
unissued shares of Capital Stock or shares of Capital Stock held in treasury
by the Corporation.
ARTICLE II
Elections and Distributions
Section 2.1. ELECTIONS TO RECEIVE CAPITAL STOCK FROM COMPENSATION. Any
Participant may elect to receive Capital Stock under this Plan in lieu of all
or a portion of the Non-Deferred Bonus Compensation otherwise payable to such
Participant in any Plan Year beginning with the Plan Year commencing July 1,
1995 (a "Stock Acquisition Election"); provided, however, that the percentage
amount of Bonus Compensation subject to such an election must be in increments
of ten percent (10%) and may not be less than ten percent (10%) of the Bonus
Compensation earned by the Participant with respect to the Plan Year or relate
to Bonus Compensation below One Thousand U.S. Dollars ($1,000), or the
equivalent if payable in another currency. If a Participant makes a Stock
Acquisition Election, the Participant shall receive, as of the date that the
Bonus Compensation otherwise would have been paid: (i) the number of shares of
Capital Stock that could have been purchased on that date based on the amount
of Bonus Compensation subject to the Stock Acquisition Election and the Fair
Market Value of the Capital Stock on that date, rounded to the nearest whole
share; and (ii) a number of shares of Capital Stock equal to the product of
the number of shares awarded pursuant to Section 2.1(i) above multiplied by a
percentage amount to be determined annually by the Committee (the "Stock
Premium Percentage") rounded to the nearest whole share. The Stock Premium
Percentage shall not exceed twenty-five percent (25%). In the absence of a
Stock Acquisition Election, all Bonus Compensation not deferred as Stock
Credits pursuant to Section 2.2 hereof or otherwise deferred pursuant to a
Deferred Compensation Plan shall be paid to the Participant in cash in
accordance with the Corporation's policies and procedures. Certificates for
Capital Stock acquired by the Participant pursuant to a Stock Acquisition
Election shall be issued as soon as practicable following the award of Bonus
Compensation.
Section 2.2. ELECTIONS TO RECEIVE STOCK CREDITS FROM DEFERRED
COMPENSATION. Any Participant may elect to receive Stock Credits under this
Plan with respect to all or a portion of the Deferred Bonus Compensation
credited to the Participant in any Plan Year beginning with the Plan Year
commencing July 1, 1995 (a "Stock Credit Election"); provided, however, that
the percentage amount of Bonus Compensation subject to such an election must
be in increments of ten percent (10%) and may not be less than 10% of the
total Bonus Compensation earned by the Participant with respect to a Plan Year
or relate to Bonus Compensation below One Thousand U.S. Dollars ($1,000), or
the equivalent if payable in another currency. If a Participant makes a Stock
Credit Election, a Stock Credit Account established for the Participant and
maintained by the Corporation shall be credited with: (i) that number of Stock
Credits equal to the number of shares of Capital Stock (including fractions of
a share to four decimal places) that could have been purchased with the amount
of Deferred Bonus Compensation subject to a Stock Credit Election based on the
Fair Market Value of the Capital Stock on the date that the Bonus Compensation
would otherwise have been paid if it had not been deferred; and (ii) that
number of Stock Credits equal to the product of the number of Stock Credits
awarded pursuant to Section 2.2(i) above multiplied by a percentage amount to
be determined annually by the Committee, which percentage may be different
from the Stock Premium Percentage (the "Stock Credit Premium Percentage").
The Stock Credit Premium Percentage shall not exceed twenty-five percent
(25%).
Section 2.3 RESTRICTED PERIOD. The Committee may, in its sole
discretion, establish a period of time (the "Restricted Period") that all or
any portion of the shares of Capital Stock issued pursuant to a Stock
Acquisition Election or shares of Capital Stock distributed with respect to
Stock Credits pursuant to Section 2.7 hereof may not be sold, assigned,
transferred, pledged or otherwise disposed of. Shares of Capital Stock
subject to a Restricted Period ("Restricted Stock") shall be represented by a
stock certificate registered in the name of the Participant which, in the
discretion of the Committee, could be either held in the custody of the
Corporation until the end of the Restricted Period applicable to such shares
or bear a restrictive legend. Except for the limitations described above, a
Participant shall have all the rights of a stockholder of the Corporation with
respect to Restricted Stock, including the right to vote such shares.
Section 2.4. TERMS AND CONDITIONS OF ELECTION. A Stock Acquisition
Election or Stock Credit Election (an "Election") shall be subject to the
following terms and conditions.
(a) An election shall be in writing and shall be irrevocable; and
(b) An Election may be made on or before December 31, 1995, to take
effect for the Plan Year ending on June 30, 1996; thereafter an
Election shall be effective for any Plan Year only if made at such
time as the Committee in its discretion shall determine; provided,
however that such election must occur at least six (6) months
prior to the date that Bonus Compensation would be paid or
otherwise would become payable if it had not been deferred by the
Participant.
(c) An Election shall remain in effect only for the Plan Year to which
it applies.
Section 2.5. ADJUSTMENT OF STOCK CREDIT ACCOUNTS.
(a) Cash Dividends -- As of the date that any cash dividend is paid to
stockholders of the Corporation, the Participant's Stock Credit
Account shall be credited with additional Stock Credits equal to
the number of shares of Capital Stock (including fractions of a
share to four decimal places) that could have been purchased on
that date with the dividends paid on the number of shares of
Capital Stock equal to the number of Stock Credits in such
Participant's Stock Credit Account based on the Fair Market Value
of the Capital Stock on that date.
(b) Stock Dividends -- In the event that a stock dividend shall be
paid upon the Capital Stock, the number of Stock Credits in each
Participant's Stock Credit Account shall be adjusted by adding
thereto additional Stock Credits equal to the number of shares of
Capital Stock which would have been distributable on the Capital
Stock represented by Stock Credits if such shares of Capital Stock
had been outstanding on the date fixed for determining the
stockholders entitled to receive such stock dividend.
(c) Other Adjustments -- In the event that the outstanding shares of
Capital Stock of the Corporation shall be changed into or
exchanged for a different number or kind of shares of stock or
other securities of the Corporation or of another corporation,
whether through reorganization, recapitalization, stock split-up,
combination of shares, merger or consolidation, then there shall
be substituted, for the shares of Capital Stock represented by
Stock Credits, the number and kind of shares of stock or other
securities which would have been substituted therefor if such
shares of Capital Stock had been outstanding on the date fixed for
determining the stockholders entitled to receive such changed or
substituted stock or other securities.
In the event there shall be any change, other than specified in
this Section 2.5, in the number or kind of outstanding shares of
Capital Stock of the Corporation or of any stock or other
securities into which such Capital Stock shall be changed or for
which it shall have been exchanged, then, if the Board shall
determine, in its discretion, that such change equitably requires
an adjustment in the number of Stock Credits or the Capital Stock
represented by such Stock Credits, such adjustment shall be made
by the Board and shall be effective and binding for all purposes
of the Plan and on each outstanding Stock Credit Account.
Section 2.6. CHANGE IN CONTROL. In the event of any threatened or
actual change in control of the Corporation (as set forth in any Deferred
Compensation Plan to which the Stock Credits relate), issued and outstanding
shares of Capital Stock shall be substituted for the Stock Credits in each
Participant's Stock Credit Account and such Capital Stock shall be transferred
to the deferred compensation trust established under the Deferred Compensation
Plan to which the Stock Credits relate.
Section 2.7. DISTRIBUTION OF STOCK CREDITS. As soon as practicable
following the date on which the Participant has elected to have the Deferred
Bonus Compensation paid pursuant to the applicable Deferred Compensation Plan
(the "Distribution Date"), the Corporation shall issue to such Participant
that number of shares of Capital Stock equal to the whole number of Stock
Credits in such Participant's Stock Credit Account to be distributed and cash
equal to the fractional Stock Credits in such account to be distributed
multiplied by the Fair Market Value of the Capital Stock as of the
Distribution Date provided, however, that the Committee, in its sole
discretion, shall have the right to pay the Participant a cash amount equal to
the aggregate value of the whole shares of Capital Stock otherwise
distributable with respect to the Stock Credits, in lieu of distributing such
shares.
Section 2.8. DISTRIBUTIONS ON DEATH. Upon the death of a Participant,
any and all restrictions on transferability of Restricted Stock held by or on
behalf of such Participant shall lapse and such shares shall become
immediately transferable. In the event of the death of a Participant prior to
the Distribution Date, the Stock Credit Account to which he or she was
entitled shall be converted to cash and distributed in a lump sum to such
person or persons or the survivors thereof, including corporations,
unincorporated associates or trusts, as the Participant may have designated.
All such designations shall be made in writing, signed by the Participant and
delivered to the Corporation. A Participant may from time to time revoke or
change any such designation by written notice to the Corporation. If there is
no unrevoked designation on file with the Corporation at the time of the
Participant's death, or if the person or persons designated therein shall have
all predeceased the Participant or otherwise ceased to exist, such
distributions shall be made to the estate of the Participant. Such
distributions shall be made as soon as practicable following notification to
the Corporation of the Participant's death. In this case, the Participant's
Stock Credit Account shall be converted to cash by multiplying the number of
whole and fractional shares of Capital Stock to which the Participant's Stock
Credit Account is equivalent by the Fair Market Value of the Capital Stock on
the date of death.
ARTICLE III
Miscellaneous Provisions
Section 3.1. AMENDMENT AND DISCONTINUANCE. The Board may alter, amend,
suspend or discontinue the Plan, provided that no such action shall deprive
any person without such person's consent of any rights theretofore granted
pursuant hereto. The Board may, in its discretion, submit any proposed
amendment to the Plan to the stockholders of the Corporation for approval and
shall submit proposed amendments to the Plan to the stockholders of the
Corporation for approval if such approval is required in order for the Plan to
comply with Rule 16b-3 of the Securities Exchange Act of 1934 (the "Exchange
Act") (or any successor rule).
Section 3.2. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Notwithstanding
any provision of the Plan or the terms of any agreement entered into pursuant
to the Plan, the Corporation shall not be required to issue any Capital Stock
or Stock Credits hereunder prior to registration of the shares subject to the
Plan under the Securities Act of 1933 or the Exchange Act, if such
registration shall be necessary, or before compliance by the Corporation or
any Participant with any other provisions of either of those acts or of
regulations or rulings of the Securities and Exchange Commission thereunder,
or before compliance with other federal and state laws and regulations and
rulings thereunder, including the rules of the New York Stock Exchange, Inc.
The Corporation shall use its best efforts to effect such registrations and to
comply with such laws, regulations and rulings forthwith upon advice by its
counsel that any such registration or compliance is necessary.
Section 3.3. COMPLIANCE WITH SECTION 16. With respect to persons
subject to Section 16(a) of the Exchange Act, transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 (or its
successor rule). To the extent that any provision of the Plan or any action by
the Board or the Committee fails to so comply, it shall be deemed null and
void to the extent permitted by law and to the extent deemed advisable by the
Committee.
Section 3.4. NON-ALIENATION OF BENEFITS. No right or interest of a
Participant in a Stock Credit Account under the Plan may be sold, assigned,
transferred, pledged, encumbered or otherwise disposed of except as expressly
provided in the Plan; and no interest or benefit of any Participant under the
Plan shall be subject to the claims of creditors of the Participant.
Section 3.5. WITHHOLDING TAXES. To the extent required by applicable
law or regulation, each Participant must arrange with the Corporation for the
payment of any federal, state or local income or other tax applicable to the
receipt of Capital Stock or Stock Credits under the Plan before the
Corporation shall be required to deliver to the Participant a certificate for
Capital Stock or distribute cash with respect to a Stock Credit Account.
At the discretion of the Committee, share tax withholding may be
permitted. Share tax withholding shall entitle the Participant to elect to
satisfy, in whole or in part, any tax withholding obligations in connection
with the issuance of shares of Capital Stock pursuant to the Plan by either
(i) withholding shares of Capital Stock otherwise issuable to the Participant;
or (ii) accepting delivery of previously owned shares of Capital Stock.
Notwithstanding the foregoing, in the case of a Participant subject to Section
16(a) of the Exchange Act, no such election shall be effective unless made in
compliance with any applicable requirements of Rule 16b-3 (or any successor
rule) that must be satisfied in order to exempt the withholding transaction(s)
from Section 16(b) of the Exchange Act.
Section 3.6. FUNDING. Except as provided in Section 2.6 hereof, no
obligation of the Corporation under the Plan shall be secured by any specific
assets of the Corporation, nor shall any assets of the Corporation be
designated as attributable or allocated to the satisfaction of any such
obligation. To the extent that any person acquires a right to receive
payments from the Corporation under the Plan, such right shall be no greater
than the right of any unsecured creditor of the Corporation.
Section 3.7. GOVERNING LAW. The Plan shall be governed by and
construed and interpreted in accordance with the internal laws of the
Commonwealth of Pennsylvania.
Section 3.8. EFFECTIVE DATE OF THE PLAN. The Plan shall become
effective upon approval and adoption of the Plan by the holders of a majority
of the shares of Capital Stock present at the 1995 annual meeting of
stockholders.
