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
For the fiscal year ended December 31, 1994
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8676
FANSTEEL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-1058780
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
NUMBER ONE TANTALUM PLACE, NORTH CHICAGO, ILLINOIS 60064
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (708) 689-4900
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
COMMON STOCK PAR VALUE $2.50 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 14, 1995 was $30,172,500.
8,598,858
(Number of shares of common stock outstanding as of February 14, 1995)
Part III incorporates information by reference from the Company's definitive
proxy statement for the annual meeting of shareholders to be held on April 26,
1995.
The total number of pages in this Form 10-K is 44 with the exhibit index being
on page 43.
PART I
ITEM 1 - BUSINESS
1
(a) The Precision Sheet Metal (PSM) plant in Los Angeles,
California completed the phase-out of all operations during
1993. The net sales for PSM for the years ended December 31,
1993 and 1992 were $1,016,000 and $30,880,000, respectively.
The operating income for the year ended December 31, 1992 was
$3,156,000. Identifiable assets of PSM at December 31, 1994
included $1,361,000 for property and plant held for sale which
are carried in Other Assets - Non-Current at December 31,
1994.
On June 4, 1992 the assets of the VR/Wesson Industrial Supply
warehouse in Beckley, West Virginia were sold. The Beckley
operation was not significant to the overall operating
performance of the Company.
(b) Incorporated by reference from the Notes to Consolidated
Financial Statements pages 35 through 37.
(c)(1)(i) Fansteel is a specialty metals manufacturer of products for
use in the metalworking; automotive; energy (coal mining, oil
and gas drilling); military and commercial aircraft, aerospace
and weapon systems; agricultural machinery; and electrical
equipment industries. The principal products of the
Industrial Tools business segment include tungsten carbide
cutting tools, milling tools, toolholding devices, mining
tools and accessories, construction tools, and wear resistant
parts. The principal products of the Metal Fabrications
business segment include titanium, nickel base and alloy steel
forgings; high integrity aluminum and magnesium sand mold
castings; carbon steel, stainless steel, brass and aluminum
special wire forms and fasteners; and brass, bronze and
ferrous alloy investment castings.
Sales of the Company's products are made through a direct
sales organization and through distributors, representatives
and agents. In the Industrial Tools and Metal Fabrications
business segments, distributors and agents account for the
majority of sales.
The percentage of net sales for classes of similar products
which equaled or exceeded ten percent of the Company's
consolidated net sales for the years indicated is set forth
below:
Consolidated Net Sales
Products Business Segment 1994 1993 1992
Tungsten carbide
cutting tools Industrial Tools 29% 25% 18%
Pressure vessels Metal Fabrications - 1 15
Non-ferrous
forgings Metal Fabrications 12 8 11
Investment
castings Metal Fabrications 13 7 7
ITEM 1 - BUSINESS (Contd.)
(c)(1)(ii) At this time, there are no new products in production or in
the development stage that require investment of a material
amount of the Company's assets.
(iii) The most important raw materials used by the Company are
2
tungsten carbide powder, cobalt, titanium, magnesium,
aluminum, columbium and alloy steel. Prices of some of these
raw materials have been volatile in recent years, and changes
in raw material prices have had an impact on the Company's
dollar sales volume. Several of the raw materials used,
including cobalt, are purchased principally from foreign
sources, many of them located in developing countries, and
availability can be affected by political developments and
trade restrictions, both domestic and foreign. The Company
believes that the sources and availability of these materials
are adequate for present needs, although spot shortages of
certain raw materials may occur from time to time.
(iv) The Company owns a number of patents which relate to a wide
range of products and processes and is licensed under certain
patents. The Company does not consider any of its patents or
group of patents to be material to either of its business
segments taken as a whole.
(v) None of the operations of any business segment are seasonal.
(vi) Working capital requirements for both business segments are
substantial, but the Company's investment in working capital
is fairly typical of the specialty metals manufacturing
industry.
(vii) Because of the nature of the Company's business, substantial
sales for the Metal Fabrications segment are concentrated in a
relatively small customer base. The loss of any individual
customer within this base could have an adverse effect on the
Company. Relations with these customers have existed for
years and the Company believes them to be sound.
ITEM 1 - BUSINESS (Contd.)
(c)(1)(vii) Atlantic Research Corporation was a principal customer of the
Company's PSM facility during 1992 due to the phase-out of
operations and accounted for 11% of the Company's net sales
for the year ended December 31, 1992.
(viii) The backlog of orders not shipped and believed to be firm as
of the dates shown are set forth below (in thousands):
December 31,
1994 1993
Industrial Tools $ 4,487 $ 4,016
Metal Fabrications 22,787 19,573
$ 27,274 $ 23,589
In the Industrial Tools segment, virtually all backlog is
shipped in less than 12 months, generally within 3 months. In
the Metal Fabrications segment, shipments are typically made
between 1 and 24 months after an order is received. The
Company believes that approximately 93% of the backlog at
December 31, 1994 will be shipped before the end of 1995.
Because of the substantial size of some orders received by the
Company - particularly orders for products sold by the Metal
Fabrications segment - the Company's backlog can fluctuate
substantially from one fiscal period to another. Because of
3
the differences in lead-time for filling orders among the
Company's business segments, overall backlogs at different
times will not necessarily be comparable as predictors of the
Company's near-term sales.
(ix) The Company's Metal Fabrications segment has orders subject to
termination at the election of the government. The Company
would be compensated for costs up to the date of termination
if terminated for the convenience of the government.
Termination without compensation could result if the Company
was in default as determined by the government. The Company
is not aware of any current orders which would be terminated
for default.
(x) In general, the Company competes in its markets on the basis
of technical expertise, product reliability, quality, sales
support, availability and price. Most of the Company's
products are sold in highly competitive markets, and some of
the Company's competitors are larger in size and have greater
financial resources than Fansteel.
(c)(1)(xi) The development of new products and processes and the
improvement of existing products and processes is conducted by
each operating unit.
ITEM 1 - BUSINESS (Contd.)
(c)(1)(xi) The Company has a staff of technically trained people who
support sales, manufacturing and quality assurance. The
majority of the Company's products and processes require
technically sophisticated application engineering and process
control. This kind of technical support is charged to the
cost of products sold.
(xii) The Company expensed $170,000 to continuing operations in 1994
for costs related to compliance with government environmental
regulations.
Capital expenditures in 1994 included $361,000 at the Wellman
Dynamics facility in Creston, Iowa for thermal sand
reclamation equipment to comply with state environmental
regulations.
During 1994, the Company charged $339,000 for continuing
operations, and $698,000 for discontinued operations, against
reserves for environmental reclamation and decommissioning
established in previous years. Reserves for environmental
reclamation and decommissioning were $641,000 for continuing
operations, and $5,078,000 for discontinued operations, at
December 31, 1994. A written decommissioning plan for the
Muskogee site was submitted, as required by government
regulations, in 1994. As of December 31, 1994, the
decommissioning plan had not been formally approved by the
appropriate governmental agencies. Based upon continuing
assessment of the decommissioning plan, taking into
consideration the most current information, existing
technology and regulations in effect, management believes that
the amounts reserved at December 31, 1994 are adequate to
cover the costs of environmental reclamation and
decommissioning.
The Company's intent is to comply with all applicable federal
4
environmental statutes and regulations promulgated thereunder,
as well as all state law counterparts, which include but are
not limited to the Resource Conservation and Recovery Act, 42
U.S.C., Section 6901 et. seq., Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C., Section
9601 et. seq., Water Pollution Control Act, 33 U.S.C., Section
1251 et. seq., and Nuclear Regulatory Commission regulations
regarding storage of low-level source material.
All of the Company's facilities are generally in compliance
with applicable air pollution control regulations and possess
the required permits from the appropriate state air pollution
control agency in which they operate.
(xiii) The Company employed 867 persons as of December 31, 1994.
(d) Net sales, income and identifiable assets of foreign
operations and export sales are not significant. The Company
considers the United States as one inseparable geographic area
for its domestic operations.
ITEM 2 - PROPERTIES
Manufacturing facility locations and corresponding square
footage are as follows:
Business Square Feet
Location Segment Owned Leased Total
Plantsville, Connecticut Industrial 59,000 0 59,000
Tools
Gulfport, Mississippi Industrial 16,000 0 16,000
Tools
Latrobe, Pennsylvania Industrial 37,000 0 37,000
Tools
Lexington, Kentucky Industrial 98,000 6,000 104,000
Tools
Los Angeles, California Metal 33,000 15,000 48,000
Fabrications
Sarasota, Florida Metal 6,000 0 6,000
Fabrications
Addison, Illinois Metal 0 46,000 46,000
Fabrications
Creston, Iowa Metal 293,000 10,000 303,000
Fabrications
Washington, Iowa Metal 71,000 0 71,000
Fabrications
All plants are well-maintained and in good operating order.
The plants have sufficient capacity to meet present market
requirements. All of the properties described above are fully
utilized on a 1 or 2 shift basis.
The Company owns properties in North Chicago, Illinois and
5
Muskogee, Oklahoma associated with operations discontinued in
prior years. These properties are included as part of Net
Assets of Discontinued Operations. The Company's PSM facility
in Los Angeles, California completed the phase out of all
operations in 1993. The remaining property and plant has been
reclassified as property held for sale as part of Other Assets
-Non-Current.
The Company's executive offices are located in North Chicago,
Illinois.
ITEM 3 - LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company or
its subsidiaries are a party or of which any of their property
is the subject other than ordinary routine litigation
incidental to the Company's business. None of these legal
proceedings are material.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of 1994.
EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
Set forth below are the principal executive officers and directors of the
Company:
Years of Service
In
Position with the Company and With Present
Name Age Principal Occupation Fansteel Position
Keith R. 63 Director, Chairman of the Board 40 11
Garrity and Chief Executive Officer
Betty B. 71 Director; Director of HBD 11 11
Evans Industries, Inc.
Edward P. 52 Director; Personal Investments 9 3
Evans
Robert S. 50 Director; Chairman and Chief 3 3
Evans Executive Officer, Crane Co.
Thomas M. 84 Director; Director of HBD 18 18
Evans Industries, Inc.
Thomas M. 57 Director; Personal Investments 9 9
Evans, Jr.
William D. 42 President and Chief Operating 2 0
Jarosz Officer
R. Michael 41 Vice President and Chief 15 4
McEntee Financial Officer
Michael J. 41 Vice President, Secretary 9 8
Mocniak and General Counsel
6
Jack S. 65 Director; Consultant, 10 10
Petrik Turner Broadcasting System, Inc.
Charles J. 64 Director; Partner, Kirkpatrick 13 13
Queenan, Jr. and Lockhart (Attorneys)
Edward P. Evans, Robert S. Evans, and Thomas M. Evans, Jr. are the sons of
Thomas M. Evans. Betty B. Evans is the wife of Thomas M. Evans. Additional
information as to Directors of the Company is herein incorporated by reference
to the information under the caption "Nominees for Election as Directors" in the
Company's definitive proxy statement for the annual meeting of shareholders on
April 26, 1995.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The New York Stock Exchange is the principal market upon which
the shares of the Company are traded.
The number of shareholders of the Company as of February 14,
1995 were 993.
Per share stock market and dividend information for each
quarter of the last two fiscal years are set forth below:
Cash
Dividends
High Low Declared
1994:
First Quarter $8 $7 1/8 $.10
Second Quarter 7 3/4 6 5/8 .10
Third Quarter 7 1/4 6 1/2 .10
Fourth Quarter 7 1/4 6 1/8 .10
1993:
First Quarter $8 7/8 $7 3/4 $.10
Second Quarter 8 1/8 6 3/4 .10
Third Quarter 8 1/8 7 1/8 .10
Fourth Quarter 8 3/4 7 1/8 .10
ITEM 6 - SELECTED FINANCIAL DATA
Selected financial data for the Company for the five year period ended December
31, 1994 are as follows:
Years Ended December 31,
(thousands of dollars
except per share data) 1994 1993 1992 1991 1990
Operating Results
Net Sales $ 89,287 $ 89,387 $127,145 $134,943 $168,808
Income (Loss) from
Continuing Operations 3,609 2,516 5,232 (9,238) 6,882
7
(Loss) from
Disc. Operations - (1,676) - (4,118) -
Net Income (Loss) 3,609 906 5,232 (13,356) 6,882
Per Share of Common
Stock:
Income (Loss) from
Continuing
Operations .42 .29 .61 (1.07) .80
(Loss) from
Discontinued
Operations - (.19) - (.48) -
Net Income (Loss) .42 .11 .61 (1.55) .80
Cash Dividends .40 .40 .50 .50 .75
Shareholders' Equity 5.83 5.82 6.12 6.01 8.06
Financial Position
Working capital $ 21,101 $ 36,321 $ 34,071 $ 34,518 $ 47,774
Net property, plant
and equipment 9,364 9,661 13,776 14,891 17,740
Total assets 72,881 73,291 78,307 81,483 96,920
Long-term debt - - 600 1,575 2,579
Shareholders' equity 50,172 50,083 52,617 51,684 69,340
Other Data
Common shares
outstanding 8,598,858 8,598,858 8,598,858 8,598,858 8,598,858
Number of
shareholders 1,055 1,094 1,099 1,122 1,128
Number of employees 867 799 955 1,190 1,565
Number of shareholders consists of the approximate shareholders of record which
include nominees and street name accounts.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - 1994 Compared to 1993
Net sales for the year ended December 31, 1994 were $89,287,000 which is a
decrease of $100,000 from 1993 net sales of $89,387,000. Net sales of ongoing
businesses in 1994 were $89,287,000 compared to $88,371,000 in 1993, an increase
in 1994 of $916,000 or 1%.
Industrial Tools business segment net sales for the twelve months of 1994 were
$43,558,000 compared to $38,604,000 for 1993, an increase of $4,954,000 or 13%.
The increase in sales within this business segment is primarily due to the
tungsten carbide wear parts product lines. These product lines, which include
rod and blanks, nozzles and compacts, and die blanks and bushings, increased
33% compared to 1993 sales. Also demonstrating sales improvement within this
business segment in 1994 were the tungsten carbide cutting tools product lines,
which include inserts, blanks, and Tantung. Tungsten carbide cutting tools
sales for 1994 were higher than 1993 by 6%. Together, tungsten carbide wear
parts and tungsten carbide cutting tools account for 78% of sales in this
business segment. A factor in the sales increase is the improved domestic
manufacturing economy; however, the positive impact of the Company's capital
investment and new product development must also be credited. The continued
sales growth of the tungsten carbide wear parts product lines together with the
rebounding sales performance of the tungsten carbide cutting tools product lines
provides optimism for the continuing growth of this business segment. Sales in
certain other product lines were less encouraging. Mining tools and
accessories, and construction tools product lines experienced sales decreases
from 1993. Mining product lines were negatively impacted by stiff price
8
competition. Construction products were adversely affected by inadequate market
coverage. During 1994, the Company changed its sales strategy from a direct
sales force to agents and manufacturer representatives. As the sales coverage
becomes more solidified in 1995, sales within this product line should recover.
Metal Fabrications business segment net sales for the year ended December 31,
1994 were $45,729,000 compared to $50,783,000 for the twelve months of 1993, a
decrease of $5,054,000 or 10%. Included in 1993 were $1,016,000 of sales from
the Precision Sheet Metal (PSM) facility in Los Angeles, California, where
operations were phased out in 1993. Thus, sales for comparable facilities in
1994 decreased $4,038,000 or 8% from 1993 results. Those product lines which
conduct a significant percent of business with the defense and/or aerospace
industries were responsible for the decline in sales. Product lines utilizing
the sand mold castings process and those that manufacture forgings experienced
sales declines in 1994 of $4,993,000 and $3,520,000, respectively. Improved
manufacturing techniques, which include significant capital expenditures, are
being introduced in the sand mold castings product lines to further the
application of these product lines to commercial industries. Additional sales
agents have been designated to introduce the forgings product line to a larger
customer base with an emphasis on commercial industries. Investment castings
product line increased net sales in 1994 by $5,076,000 or 80%. Sales to
customers in commercial industries, including automotive, construction, basic
industrial and firearm, have increased in 1994 primarily due to the expanding
domestic economy. Sales of special wire forms, principally to outdoor products
and automotive markets, increased 10% from 1993. Sales in this product line
have been strong for several years and consistent growth is expected to
continue.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Contd.)
Order backlog at December 31, 1994 was $27,274,000, an increase of $3,685,000 or
16% from backlog at December 31, 1993 of $23,589,000. Industrial Tools business
segment backlog was $4,487,000 at December 31, 1994 compared to $4,016,000 at
December 31, 1993, an increase of $471,000. Tungsten carbide cutting tools
product lines showed significant improvement in sales order performance with
backlog increases for inserts, tools and blades, and Tantung products from year
end 1993. Orders for mining tools and accessories and construction product
lines were down in 1994 compared to 1993. Backlog of wear parts product lines
remained strong. Metal Fabrications business segment backlog at December 31,
1994 was $22,787,000, an increase of $3,214,000 from December 31, 1993 backlog
of $19,573,000. Backlog of orders for almost all product lines in this business
segment increased in 1994, including those product lines which have suffered in
the recent past from the decreased business in the defense and aerospace
industries. Backlogs for the forgings product line and product lines utilizing
the sand mold casting process at December 31, 1994 both increased 9% from
December 31, 1993. Although orders from customers in aerospace markets were up
slightly, this is not indicative of a recovery in this market. The increase in
backlog for sand mold castings, however, is related to the introduction of a new
production process formulated to better serve commercial customers. Investment
castings made significant strides in 1994; backlog in this product line
increased 85% from year-end 1993. Expansion in the commercial economy,
primarily in the automotive and basic industrial markets, fueled the improved
performance in this product line. Wire forms product lines maintained a solid
pace, increasing an already strong backlog by 20%.
Cost of products sold for the twelve months ended December 31, 1994 was
$72,033,000 compared to $73,579,000 for the year ended December 31, 1993, a
decrease of $1,546,000 or 2%. As a percent of sales, cost of products sold for
the year ended December 31, 1994 was 80.7% compared to 82.3% for the same period
of 1993. Cost of sales of ongoing operations for 1994 was $72,033,000, a
decrease of $530,000 from 1993 cost of sales of $72,563,000. Cost of sales as a
percent of sales for ongoing operations for the twelve months of 1994 was 80.7%
9
compared to 82.1% for the year ended December 31, 1993. The decrease in cost of
products sold is due to a program of internal improvements instituted over the
last three years, concentrating on reduction of expenses, maximum utilization of
manpower, and strategic asset investment.
Selling, general and administrative expenses for the twelve months ended
December 31, 1994 were $12,602,000 compared to $13,250,000 for the like period
of 1993, a decrease of $648,000 or 5%. As a percent of net sales, selling,
general and administrative expenses were 14.1% for the year ended December 31,
1994 compared to 14.8% for the year ended December 31, 1993. Strict expense
controls, combined with more efficient sales strategies, have succeeded in
improving selling, general and administrative expenses in relation to sales
volume.
Operating income for the twelve months ended December 31, 1994 was $4,652,000
compared to $2,558,000 for the same period of 1993, an increase of $2,094,000 or
82%. Operating income for the Industrial Tools business segment was $2,857,000
for the year ended December 31, 1994, an increase of $858,000 from the prior
year operating income of $1,999,000. Metal Fabrications business segment
operating income was $1,232,000 greater in 1994 than in 1993, increasing from
$577,000 in 1993 to $1,809,000 in 1994 despite lower sales volume. Cost
controls initiated in the last three years to offset the loss of
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Contd.)
sales volume have had a positive effect on the profitability of the Company. As
additional penetration is made into existing markets and as new markets are
opened, operating performance should continue to improve.
Other income for the year ended December 31, 1994 was $1,294,000 compared to
$1,616,000 for the same period of 1993, a decrease of $322,000. Interest income
decreased $307,000 as interest on an income tax refund was received in 1993.
Other income in 1993 included a gain on the sale of marketable securities of
$386,000; there was no similar gain in 1994. Interest expense decreased
$260,000 as the remaining balance of long-term debt was paid in 1994 and long-
term environmental liabilities were not discounted in 1994.
Net income of $3,609,000 or $.42 per share was reported for 1994 compared to net
income of $906,000 or $.11 per share for 1993. Net income for 1993 included a
loss from discontinued operations of $1,676,000 or $.19 per share as a result of
additional provisions to eliminate any future impact due to the recording of
discounted estimated costs in prior years and to eliminate previously estimated
unrealized recoveries. Net income for 1993 also included a favorable adjustment
of $66,000 or $.01 per share for the effect of a change in accounting principle.
Inflation factors did not, and generally do not, significantly affect the
overall operations of the Company.
Results of Operations - 1993 Compared to 1992
Net sales in 1993 were $89,387,000 compared to $127,145,000 in 1992, a decrease
of $37,758,000 or 30%. Both the Industrial Tools and Metal Fabrications
business segments reported declines in net sales compared to 1992 with a
significant portion of the decline related to operations which were sold or
phased out in 1992 and 1993. Net sales of ongoing businesses in 1993 and 1992
were $88,371,000 and $93,681,000, respectively, posting a decrease of $5,310,000
or 6%.
Industrial Tools business segment net sales in 1993 were $38,604,000, which was
a decrease of $3,574,000 from 1992 net sales of $42,178,000. The Company's
industrial supply warehouse in Beckley, West Virginia, sold in 1992, accounted
for $2,584,000 of 1992 net sales; thus, the decline in sales of ongoing
10
operations was $990,000. The majority of the decline was within the tungsten
carbide cutting tools product line as compared to the prior year. Cutting tools
continued to feel the effect of downsizing activities initiated by several major
customers, primarily in the aerospace industry. In recent years, sales of
tungsten carbide cutting tools and holding devices had been flat. However,
current trends indicated that these products might show a resurgence in the near
term. Tungsten carbide wear parts continued to exhibit a growth capability in
this business segment. Sales within the wear parts product lines showed
significant strength for the year ended December 31, 1993 as compared to the
same period in 1992. Customer demand for tungsten carbide nozzles and compacts,
as well as tungsten carbide rod and blanks, was heavy in 1993 and was expected
to remain so in the next year. Sales in the construction tools product line
rebounded in 1993, posting a 14% improvement as compared to 1992. The
construction product line, which involves road construction, began to show
increased sales activity. As the economy improved in the manufacturing sector,
sales performance in all of the Industrial Tools business segment product lines
gathered momentum.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Contd.)
Net sales in 1993 for the Metal Fabrications business segment were $50,783,000,
which was a $34,183,000 or 40% decrease from net sales in 1992 of $84,966,000.
Net sales by the phased out PSM operation for the twelve months of 1992 were
$30,880,000 as compared to $1,016,000 finally shipped in 1993. Net sales of
ongoing operations in the Metal Fabrications business segment for the twelve
months ended December 31, 1993 were $49,767,000 as compared to $54,086,000 for
the same period of 1992, which was a decrease of $4,319,000 or 8%. Product
lines utilizing the sand mold castings process experienced a decrease in net
sales in 1993 as compared to 1992 of $3,849,000. Decreased sales in the
aerospace industry, especially engine castings and missile castings purchased by
U.S. defense procurement agencies, continued in 1993. However, sales of new
tooling for sand mold castings applicable to the V22 Osprey program were higher
in the year ended December 31, 1993 as compared to the same period of 1992.
Sales of forgings applicable to defense-related production also showed a slight
decrease in 1993 compared to 1992. Investment castings product line sales
declined in 1993, as the lingering effects of a flat industrial economy had a
detrimental effect on the sales performance of this product line. Increased
sales order activity at the end of 1993 indicated improved sales performance in
the near term for the investment castings product line. Sales performance for
the wire forming product lines was about the same in 1993 compared to 1992.
Both years showed sustained strength in the markets served.
At December 31, 1993, the backlog of unfilled orders for the Company was
$23,589,000 as compared to $31,789,000 at the same date of 1992, a decrease of
$8,200,000. The backlog for the Industrial Tools business segment at December
31, 1993 was $4,016,000, an increase of $780,000 from December 31, 1992. Orders
of tungsten carbide rod increased in 1993; backlog in this product line at year-
end 1993 was up 113% over December 31, 1992. Drill parts and construction tools
product lines also showed increases in backlog from prior year-end. Metal
Fabrications business segment backlog decreased $8,980,000, from $28,553,000 at
December 31, 1992 to $19,573,000 at December 31, 1993. The largest decrease in
backlog was experienced in the forgings product line. The shrinking aerospace
industry was responsible for the order decline. Many customers reverted to
smaller order quantities and just-in-time delivery schedules. Sand mold
castings also experienced a decline in backlog related to lagging sales to
military aerospace customers. The investment castings product line, however,
showed first signs of recovery as backlog at December 31, 1993 increased
significantly over year-end 1992. The backlog for wire-formed products was
strong, but showed little change from year-end 1992.
Cost of products sold in the year ended December 31, 1993 totaled $73,579,000, a
decrease of $30,433,000 from 1992 cost of sales of $104,012,000. As a percent
of net sales, cost of products sold for the twelve months ended December 31,
11
1993 was 82.3% compared to 81.8% for the same period of 1992. Cost of products
sold in 1992 included cost credits of $802,000 and $3,070,000 in the Industrial
Tools and Metal Fabrications business segments, respectively, due to LIFO
inventory liquidations for the change in the reserve to state certain
inventories at LIFO cost. The LIFO cost credits for the Metal Fabrications
business segment pertained to the closing of the PSM facility. For ongoing
operations, cost of sales as a percent of sales in 1993 was 82.1%; for
comparable operations in 1992, cost of sales as a percent of sales was 81.7%.
Cost containment measures, including inventory management, expense reductions
and employee reorganizations continued throughout 1993 to maximize efficiencies
within the Company.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Contd.)
Selling, general and administrative expenses were $13,250,000 for the twelve
months ended December 31, 1993, as compared to $15,350,000 for the year ended
December 31, 1992, a decrease of $2,100,000. The shutdown of the PSM operation
accounted for $1,087,000 of the decrease in selling, general and administrative
expenses in 1993. Additional cost savings were realized in 1993 by adherence to
the Company's cost saving measures, including staff reductions and strict
expense control. Selling, general and administrative expenses as a percent of
net sales of ongoing operations were 15.0% in 1993, compared to 13.7% in 1992.
Thus, cost reduction measures implemented did not fully offset the decline in
sales volume.
Operating income for the twelve months ended December 31, 1993 was $2,558,000 as
compared to $7,783,000 for the same period of 1992, which was a decrease of
$5,225,000. Phased-out or sold operations accounted for $3,516,000 of the
operating income in 1992, but did not affect operating income in 1993.
Operating income of the Industrial Tools business segment of $1,999,000 improved
19% compared to 1992 on lower sales volume. Improved efficiencies, cost
reductions and favorable raw material prices contributed to the 1993
performance. Operating income of the Metal Fabrications business segment was
$577,000 for 1993 compared to $5,947,000 for 1992. The substantially lower
operating income in this segment was related directly to the loss of sales
volume due to the depressed aerospace and defense industries and the closing of
the PSM facility.
Other income in 1993 totaled $1,616,000 as compared to $723,000 in 1992, an
increase of $893,000. Interest income increased $546,000 as the Company
invested cash and overnight securities into more lucrative U.S. Treasury Notes,
U.S. Treasury Bills and bank investment arrangements, and realized interest
income on income tax refunds relating to prior years. The gain on the sale of
capital assets in 1993 was $3,184,000; however, $2,914,000 of this gain was
related to phased out and discontinued operations and was reserved for plant
shutdown costs and environmental clean-up. The gain on the sale of marketable
securities in 1993 totaled $386,000; there was no such gain in 1992.
Income from continuing operations for 1993 was $2,516,000 or $.29 per share
compared to $5,232,000 or $.61 per share in 1992, a decrease of $2,716,000.
Operations phased out or sold in 1992 contributed $2,225,000 of the 1992 net
income or $.26 per share with no effect on net income in 1993.
The loss from discontinued operations in 1993 was $1,676,000 or $.19 per share.
This loss was a result of additional provisions to eliminate any future impact
as a result of recording discounted estimated costs in prior years and to
eliminate previously estimated unrealized recoveries.
Net income of $906,000 or $.11 per share was reported for 1993 compared to net
income of $5,232,000 or $.61 per share in 1992.
Outlook
12
The improved industrial economy, combined with modernization of the Company's
production processes, new product development and capital equipment investment,
provide a foundation for growth in commercial markets. The Company has a strong
balance sheet, which allows for additional investment in each of these areas as
required.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Contd.)
The Company recognizes that its ability to endure the impact of economic
recession and the substantial decline of the defense and aerospace business, in
particular, was due in large part to decisions focused on cost containment. As
the Company continues to pursue avenues to increase sales and profits, cost
control programs based on intelligent use of available resources will remain
active throughout the Company.
The Company is continuing to place its primary focus on a transition from
military to commercial markets. Internal growth of formerly defense-related
operating units is expected commensurate with the Company's ability to achieve
greater participation in commercial markets. Capital equipment investment has
been initiated and modernized production techniques employed to facilitate this
transition.
Liquidity and Capital Resources
Cash and cash equivalents totaled $9,429,000 at December 31, 1994, a decrease of
$1,215,000 from December 31, 1993. Operating activities provided $4,307,000 in
the year. Adjustments to reconcile net income of $3,609,000 to cash provided by
operating activities included depreciation of $1,975,000, a deferred income tax
charge of $1,302,000, and gains on the sale of capital assets of $292,000.
Inventories increased $1,426,000. Investing activities used $1,506,000 in the
year, including $1,654,000 for capital expenditures to automate equipment and
modernize processes. Financing activities in 1994 included the final payment on
long-term debt of $600,000 and dividend payments to shareholders of $3,440,000.
Current assets of the Company at December 31, 1994 exceeded current liabilities
by a 2.2 to 1 margin as compared to 3.1 to 1 at December 31, 1993. Certain
marketable securities were included in non-current assets at December 31, 1994,
in accordance with FASB Statement No. 115. At December 31, 1993 all marketable
securities were classified as current assets.
Cash flow from operations in 1995 is expected to be adequate to cover operating
requirements. If the need for additional funds arises, the Company has strong
long-term relationships with several large banking institutions.
At December 31, 1994, the Company had established reserves of $5,078,000 for
environmental clean-up costs for discontinued operations. The Company, in
association with outside consultants, has developed a decommissioning plan for
the site involved. This decommissioning plan has not been approved by the
appropriate government agencies as of December 31, 1994. Before
decommissioning procedures begin, the Company plans to extract materials within
the residue storage ponds at the site, such as tantalum, columbium and scandium,
which have a commercial value.
The processing of the residues to extract the materials having a commercial
value is in the development stages. A method has been developed which is being
tested, evaluated, and refined. After the required regulatory approvals are
received, equipment will be acquired to begin extraction and processing. The
estimated value of materials to be extracted is based on analysis of samples
taken from the residues in the various ponds and a market value of such
materials using current market prices discounted to reflect possible price
decreases, including those which could result from the increased quantities of
13
certain of these materials made available for sale. The
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Contd.)
estimated costs of extracting and processing the residues were developed by
Company personnel and independent consultants using third party evaluations
based on the pilot testing performed. Current expectations are that eight to
ten years will be required to extract and process the contents of all residue
storage areas. The removal of the contents of the first residue storage pond is
expected to start after licensing approval is received near the end of 1995.
The provisions for discontinued operations reflect management's belief that, at
this point in time, the current value of the extracted materials will at least
equal the estimated costs of obtaining these materials, including estimated
costs for disposal of hazardous waste from the residues. Decommissioning is
expected to begin on a pond by pond basis immediately after the extraction of
the residue from each pond. Based upon continuing assessment of the
decommissioning plan, taking into consideration the most current information,
existing technology and regulations in effect, management believes that the
amounts reserved at December 31, 1994 are adequate to cover the costs for
environmental reclamation and decommissioning.
The Company's Precision Sheet Metal (PSM) operation within the Metal
Fabrications business segment was phased out in 1993. The remaining land and
buildings are carried as Other Assets - Property held for sale. The cost of
preparing the property for sale, principally environmental clean-up, will be
capitalized. Management believes that proceeds from the sale of the property
will be adequate to recover its costs, including costs of preparing the property
for sale.
The Company's Escast operation, located in Addison, IL, included in the Metal
Fabrications business segment, has been named as a responsible party for the
clean-up costs of certain hazardous wastes. A cost sharing agreement with the
former owner of Escast is in place for any future clean-up costs. At this time,
the amount of the clean-up costs is not fixed and determinable. However, the
Company believes the established reserves of $641,000 are adequate to cover its
share of the clean-up costs.
Environmental matters arising at other operating units are routinely reviewed
and handled through operations. The Company believes that the ultimate
disposition of any other pending environmental matters will not have a material
adverse effect upon the consolidated financial position of the Company.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Fansteel Inc.:
We have audited the accompanying consolidated balance sheet of Fansteel Inc. as
of December 31, 1994 and 1993, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1994. Our audits also included the financial
statement schedule listed in the Index at Item 14(a)(2). These financial
statements and schedule are the responsibility of Fansteel Inc. management. Our
responsibility is to express an opinion on these financial statements and
schedule 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
14
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fansteel Inc. at December 31, 1994 and 1993, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
\s\Ernst & Young LLP
Chicago, Illinois
January 18, 1995
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31,
1994 1993 1992
Net Sales $ 89,287,336 $ 89,387,486 $127,144,839
Cost and Expenses
Cost of products sold 72,033,115 73,579,091 104,012,109
Selling, general and
administrative 12,601,816 13,250,265 15,349,511
84,634,931 86,829,356 119,361,620
Operating Income 4,652,405 2,558,130 7,783,219
Other Income (Expense)
Interest income 1,076,740 1,383,941 837,709
Interest expense (17,769) (277,826) (231,706)
Other 235,002 509,593 117,265
1,293,973 1,615,708 723,268
Income From Continuing
Operations Before Income Taxes 5,946,378 4,173,838 8,506,487
Income Tax Provision 2,337,000 1,658,000 3,274,000
Income From Continuing
Operations 3,609,378 2,515,838 5,232,487
(Loss) From Discontinued
Operations - (1,676,000) -
Income Before Cumulative
Effect of Accounting Change 3,609,378 839,838 5,232,487
Cumulative Effect to January 1,
1993 of Change in Accounting
for Income Taxes - 66,000 -
Net Income $ 3,609,378 $ 905,838 $ 5,232,487
Income (Loss) Per Common Share
Continuing operations $.42 $.29 $.61
15
Discontinued operations - (.19) -
Cumulative Effect of
Accounting Change - .01 -
Net Income $.42 $.11 $.61
See Notes to Consolidated Financial Statements.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
CONSOLIDATED BALANCE SHEET
At December 31,
1994 1993
ASSETS
Current Assets
Cash and cash equivalents $ 9,429,031 $ 10,644,413
Marketable securities 293,367 15,095,026
Accounts receivable, less allowance of
$276,000 in 1994 and 1993 13,048,394 12,325,810
Income tax refunds receivable - 208,450
Inventories
Raw material and supplies 3,135,098 3,058,053
Work-in-process 11,376,665 10,825,005
Finished goods 5,256,355 4,785,717
19,768,118 18,668,775
Less:
Reserve to state certain inventories at
LIFO cost 6,987,569 7,313,972
Total inventories 12,780,549 11,354,803
Other assets - current
Deferred income taxes 1,981,749 2,837,807
Other 949,479 998,380
Total Current Assets 38,482,569 53,464,689
Net Assets of Discontinued Operations 522,637 522,637
Property, Plant and Equipment
Land 872,641 872,641
Buildings 8,721,261 8,721,261
Machinery and equipment 43,305,113 41,798,514
52,899,015 51,392,416
Less accumulated depreciation 43,535,103 41,731,258
Net Property, Plant and Equipment 9,363,912 9,661,158
Other Assets
Marketable securities 15,001,512 -
Prepaid pension asset 7,942,741 7,789,566
Deferred income taxes 175,476 365,832
Property held for sale 1,361,008 1,453,810
Other 31,063 33,642
Total Other Assets 24,511,800 9,642,850
$ 72,880,918 $ 73,291,334
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
CONSOLIDATED BALANCE SHEET (Contd.)
At December 31,
1994 1993
16
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 7,607,591 $ 5,193,599
Accrued liabilities 9,716,919 10,827,199
Income taxes 57,481 523,304
Current maturities of long-term debt - 600,000
Total Current Liabilities 17,381,991 17,144,102
Other Liabilities
Discontinued operations 4,255,000 5,175,000
Deferred income taxes 965,079 753,085
Obligations under capital leases 107,057 135,666
Total Other Liabilities 5,327,136 6,063,751
Shareholders' Equity
Preferred stock without par value
Authorized and unissued 1,000,000 shares - -
Common stock, par value $2.50
Authorized 12,000,000 shares; issued and
outstanding 8,598,858 shares 21,497,145 21,497,145
Retained earnings 28,756,171 28,586,336
Unrealized (loss) on securities (81,525) -
Total Shareholders' Equity 50,171,791 50,083,481
$ 72,880,918 $ 73,291,334
See Notes to Consolidated Financial Statements.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31,
1994 1993 1992
Cash Flows From Operating
Activities
Net income $ 3,609,378 $ 905,838 $ 5,232,487
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 1,975,038 2,198,185 2,135,115
Net pension (credit) (153,175) (333,114) (372,995)
Deferred income tax charge
(credit) 1,301,924 (378,607) 1,561,570
Gain from disposals of
property, plant and equipment (291,852) (270,678) (531,913)
Gain on sale of marketable
securities - (386,409) -
Provisions for environmental
costs and other liabilities - 2,717,000 -
Change in assets and
liabilities:
(Increase) in marketable
securities (169,988) (169,225) (78,096)
(Increase) decrease in
accounts receivable (722,584) 3,792,044 793,699
Decrease in income tax
refunds receivable 208,450 646,805 6,768,745
(Increase) decrease in
inventories (1,425,746) 1,315,392 1,254,126
17
Decrease (increase) in other
assets - current 48,901 (399,755) 1,953,460
Increase (decrease) in
accounts payable and accrued
liabilities 389,570 (8,376,122) (3,167,641)
(Decrease) increase in income
taxes payable (465,823) 114,565 (1,500,145)
Decrease in other assets 2,579 67,267 93,098
Net cash provided by
operating activities 4,306,672 1,443,186 14,141,510
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
CONSOLIDATED STATEMENT OF CASH FLOWS (Contd.)
For the Years Ended December 31,
1994 1993 1992
Cash Flows From Investing
Activities
Investment in marketable
securities (14,104,906) (19,847,705) (9,992,188)
Proceeds from disposition of
marketable securities 13,950,000 15,378,597 -
Proceeds from sale of property,
plant and equipment 303,513 4,557,921 699,897
Capital expenditures (1,654,453) (435,997) (1,188,166)
Net cash (used in)
investing activities (1,505,846) (347,184) (10,480,457)
Cash Flows From Financing
Activities
Payments on long-term debt (600,000) (975,432) (1,003,338)
Proceeds from capital leases 113,924 197,690 -
Principal payments for capital
leases (90,589) (10,083) -
Dividends paid (3,439,543) (3,439,543) (4,299,429)
Net cash (used in)
financing activities (4,016,208) (4,227,368) (5,302,767)
Net (Decrease) In Cash And Cash
Equivalents (1,215,382) (3,131,366) (1,641,714)
Cash And Cash Equivalents At
Beginning Of Year 10,644,413 13,775,779 15,417,493
Cash And Cash Equivalents At End
Of Year $ 9,429,031 $ 10,644,413 $ 13,775,779
Interest Paid $ 13,000 $ 46,000 $ 96,000
See Notes to Consolidated Financial Statements.
18
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Unrealized
Years Ended Common Retained (Loss) on
December 31, Stock Earnings Securities Total
1992
Balance at January 1 $ 21,497,145 $ 30,186,983 $ - $ 51,684,128
Net income - 5,232,487 - 5,232,487
Dividends ($.50 per
share) - (4,299,429) - (4,299,429)
Balance at
December 31 21,497,145 31,120,041 - 52,617,186
1993
Net income - 905,838 - 905,838
Dividends ($.40 per
share) - (3,439,543) - (3,439,543)
Balance at
December 31 21,497,145 28,586,336 - 50,083,481
1994
Net income - 3,609,378 - 3,609,378
Unrealized (loss)
on securities - - (81,525) (81,525)
Dividends ($.40 per
share) - (3,439,543) - (3,439,543)
Balance at
December 31 $ 21,497,145 $ 28,756,171 $ (81,525) $ 50,171,791
See Notes to Consolidated Financial Statements.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
The consolidated financial statements include the accounts of Fansteel Inc. and
its subsidiaries (the "Company").
The Company considers all investments purchased with a maturity of three months
or less to be cash equivalents. On December 31, 1994 and 1993, the Company had
purchased $8,800,000 and $9,700,000, respectively, of U.S. Government securities
under agreements to resell on January 3, 1995 and January 3, 1994, respectively.
Due to the short-term nature of the agreements, the Company did not take
possession of the securities which were instead held in the Company's
safekeeping accounts at the banks.
Effective January 1, 1994, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Accordingly for 1994, marketable securities are classified
as held-to-maturity or available-for-sale. The Company determines the
appropriate classification at time of purchase and reevaluates such designation
as of each balance sheet date. Securities are classified as held-to-maturity
19
when the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at cost, adjusted for
amortization of premiums and discounts to maturity. Marketable securities not
classified as held-to-maturity are classified as available-for-sale. Available-
for-sale securities are carried at fair value, with unrealized gains and losses,
net of tax, reported as a separate component of shareholders' equity. The cost
of securities available-for-sale is adjusted for amortization of premiums and
discounts to maturity. Interest and amortization of premiums and discounts for
all securities are included in interest income. Realized gains and losses are
included in other income. Application of this standard did not have a
significant impact on the Company's results of operations. In accordance with
Statement No. 115, the Company has not restated the financial statements for
prior years. For 1993, marketable securities are carried at cost plus accrued
interest and amortized discount, where applicable.
Inventories are valued at the lower of cost, determined principally on the
"last-in, first-out" (LIFO) basis, or market. Costs include direct material,
labor and applicable manufacturing overhead. Inventories valued using the LIFO
method comprised 94% and 92% of inventories at current cost at December 31, 1994
and 1993, respectively.
Acquisitions of properties and additions to existing facilities and equipment
are recorded at cost. Accelerated depreciation is the principal method used for
both financial reporting and income tax purposes.
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes," which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the 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. Prior to 1993, the provision for income
taxes was based on income and expenses included in the consolidated statements
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
of operations. As permitted by Statement No. 109, the Company has elected not
to restate prior years' financial statements. The cumulative effect of the
change increased net income by $66,000 or $.01 per share for 1993.
Effective January 1, 1993, the Company adopted FASB Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions," which
requires employers to accrue the cost of such retirement benefits during the
employee's service with the Company. Prior to 1993, the cost of providing these
benefits to retirees was recognized as a charge to operations as claims were
received, when employees retired or facilities closed. Adoption of Statement
No. 106 resulted in excess accrued retiree life insurance of $475,000. The
transition asset for the excess retiree life insurance is being amortized over
the average remaining working lifetime to full benefit eligibility, which was
estimated at 17 years. Therefore, the adoption of Statement No. 106 did not
have a material effect on the Company's 1993 results of operations.
Certain reclassifications have been made to prior years' financial statements to
conform with the 1994 presentation.
2. Marketable Securities
At December 31, 1994, the Company held investments in marketable securities
which it classified as either available-for-sale or held-to-maturity, depending
upon the security.
20
Securities classified as available-for-sale at December 31, 1994 included both
securities due within one year and securities with maturity dates beyond one
year. Securities with a maturity date within one year are classified as
Marketable Securities as a part of Current Assets and are stated at fair value
plus accrued interest. Securities with a maturity date beyond one year are
included in Other Non-Current Assets and are stated at fair value. These
available-for-sale securities at December 31, 1994 included the following:
Amortized Fair
Cost Value
Marketable Securities - Current:
Northern Trust Advantage investment
portfolio consisting of government
securities and municipal bonds $ 35,599 $ 35,599
Accrued interest 257,768 257,768
$ 293,367 293,367
Marketable Securities - Non-Current:
Northern Trust Advantage investment
portfolio consisting of government
securities and municipal bonds $ 5,153,711 5,028,670
Net Book Value - Available-
for-Sale Securities: $ 5,322,037
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
Securities classified as held-to-maturity are stated at amortized cost and are
included in Other Non-Current Assets on the December 31, 1994 Consolidated
Balance Sheet. These held-to-maturity securities at December 31, 1994 included
the following:
Amortized Fair
Cost Value
U.S. Treasury Note, face value of
$5,000,000, interest at 5.125%,
due April 30, 1998 $ 4,972,842 $ 4,606,250
U.S. Treasury Note, face value of
$5,000,000, interest at 6.250%,
due January 31, 1997 5,000,000 $ 4,860,938
Net Book Value - Held-to-
Maturity Securities: $ 9,972,842
In 1994, transactions in marketable securities decreased cash by $154,906.
Investment in held-to-maturity securities totaled $5,000,000 while investments
in available-for-sale securities were $9,104,906. Proceeds from the disposition
of available-for-sale securities amounted to $13,950,000 with sales and
maturities of available-for-sale securities providing $250,000 and $13,700,000,
respectively.
In accordance with FASB Statement No. 115, the Company has not restated the
financial statements of prior years. The Company had the following marketable
21
securities stated at amortized cost plus accrued interest and classified as a
part of Current Assets at December 31, 1993:
Amortized Fair
Cost Value
U.S. Treasury Note, face value
of $5,000,000, interest at 5.125%,
due April 30, 1998 $ 4,964,683 $ 5,012,500
U.S. Treasury Bill, face value of
$5,000,000, due February 24, 1994 4,976,854 4,977,849
Northern Trust Advantage investment
portfolio consisting of government
securities and municipal bonds 5,037,007 5,045,055
14,978,544 15,035,404
Accrued interest 116,482 116,482
$ 15,095,026 $ 15,151,886
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
The calculation of gross unrealized loss for the year ended December 31, 1994 is
as follows:
Gross
Unrealized
Fair Value Cost (Loss)
Available-for-sale
securities $ 5,064,269 $ 5,189,310 $ (125,041)
Held-to-maturity securities:
U.S. Treasury Note, face
value of $5,000,000,
interest at 5.125%, due
April 30, 1998 4,606,250 4,972,842 (366,592)
U.S. Treasury Note, face
value of $5,000,000,
interest at 6.250%, due
January 31, 1997 4,860,938 5,000,000 (139,062)
Gross Unrealized (Loss) $ (630,695)
Net unrealized losses on held-to-maturity securities have not been recognized in
the accompanying consolidated financial statements. Net unrealized loss on
available-for-sale securities included in shareholders' equity at December 31,
1994 was $81,525, consisting of gross unrealized loss of $125,041 net of
deferred income taxes.
Net unrealized gain at December 31, 1993 was $56,860, consisting of aggregate
market value of $15,035,404 and aggregate cost of $14,978,544. Net unrealized
gain at December 31, 1993 is not included in the accompanying consolidated
financial statements, as allowed by FASB Statement No. 115.
22
Net realized gains on marketable securities for the year ended December 31, 1993
were $386,409. There were no realized gains or losses for the years ended
December 31, 1994 or 1992.
3. Accrued Liabilities
Accrued liabilities at December 31, 1994 and 1993 include the following:
1994 1993
Payroll and related costs $ 2,683,209 $ 2,162,140
Taxes, other than income 266,960 358,001
Profit sharing 556,208 465,879
Insurance 3,862,646 4,098,675
Plant shutdown costs 992,078 2,612,027
Other 1,355,818 1,130,477
$ 9,716,919 $ 10,827,199
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
4. Discontinued Operations, Contingent Liabilities and Other Liabilities
The Company discontinued its Metal Products business segment in 1989.
Environmental reclamation and decommissioning is required for the segment's
primary plant that processed certain ores which are subject to regulations of
several government agencies. The residues from these processed ores were stored
on site. Remaining assets were written down to estimated realizable value, and
provisions were made for the estimated costs for decommissioning. Application
has been made to the appropriate agencies for a portion of the site to be
decommissioned. A decommissioning plan for the remainder of the site, including
the residue storage areas, has been submitted to the appropriate governmental
agencies for approval. Before decommissioning procedures begin for the residue
storage areas, the Company plans to extract materials within the residues, such
as tantalum, columbium and scandium, which have a commercial value.
The processing of the residues to extract the materials having a commercial
value is in the development stages. A method has been developed which is being
tested, evaluated, and refined. After the required regulatory approvals are
received, equipment will be acquired to begin extraction and processing. The
estimated value of materials to be extracted is based on analysis of samples
taken from the residues in the various settling ponds and a market value of such
materials using current market prices discounted to reflect possible price
decreases, including those which could result from the increased quantities of
certain of these materials made available for sale. The estimated costs of
extracting and processing the residues were developed by Company personnel and
independent consultants using third party evaluations based on the pilot testing
performed. Current expectations are that eight to ten years will be required to
extract and process the contents of all residue storage areas. The removal of
the contents of the first residue storage area is expected to start after
licensing approval is received near the end of 1995. The annual recovery values
are estimated to be in a range of $2,000,000 to $3,000,000. The provisions for
discontinued operations reflect management's belief that, at this point in time,
the current value of the extracted materials will at least equal the estimated
costs of obtaining these materials, including total project estimated costs of
$1,000,000 for disposal of hazardous waste from the residues. Definitive plans
for extracting and processing of the residues are being developed; therefore,
the costs and related value of recoveries are difficult to determine with exact
precision. Decommissioning is expected to begin on a pond by pond basis
immediately after the extraction of the residue from each pond.
23
Expenditures for environmental reclamation and decommissioning were $1,061,000,
$1,986,000 and $1,001,000 in 1994, 1993, and 1992, respectively. Costs of
$763,000 which are expected to be incurred within the next year are included as
plant shutdown costs in Accrued Liabilities. Costs expected to be incurred
after one year are reflected on the balance sheet in Discontinued Operations as
part of Other Liabilities. Based upon continuing assessment of the
decommissioning plan, taking into consideration the most current information,
existing technology and regulations in effect, management believes that the
amounts reserved at December 31, 1994 are adequate to cover the costs for
environmental reclamation and decommissioning.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
In 1993, a provision of $2,717,000 ($1,676,000 after tax) was recorded to
eliminate the impact of having discounted estimated costs for decommissioning in
prior years since the timing and amount of costs expected to be incurred were
not fixed and determinable and to eliminate previously estimated unrealized
recoveries.
The net assets of discontinued operations at December 31, 1994 and 1993 include
the following (in thousands of dollars):
Land $ 110
Buildings 5,218
5,328
Less accumulated depreciation 4,805
Net assets of discontinued operations $ 523
The Company's Precision Sheet Metal (PSM) operation within the Metal
Fabrications business segment was phased out in 1993. The remaining land and
buildings are carried as Other Assets - Property held for sale. The cost of
preparing the property for sale, principally environmental clean-up, will be
capitalized. Management believes that proceeds from the sale of the property
will be adequate to recover its costs, including costs of preparing the property
for sale. The Company believes the reserves established for other costs
associated with the close-down of PSM are adequate to cover such costs.
The Company's Escast operation, located in Addison, IL, included in the Metal
Fabrications business segment, has been named as a responsible party for the
clean-up costs of certain hazardous wastes. A cost sharing agreement with the
former owner of Escast is in place for any future clean-up costs. At this time,
the amount of the clean-up costs is not fixed and determinable. However, the
Company believes the established reserves of $641,000 are adequate to cover its
share of the clean-up costs.
Environmental matters arising at other operating units are routinely reviewed
and handled through operations. The Company believes that the ultimate
disposition of any other pending environmental matters will not have a material
adverse effect upon the consolidated financial position of the Company.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
24
5. Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities at December 31, 1994 and 1993 are
as follows:
1994 1993
Deferred tax assets - current:
Plant shutdown, idle facilities and
environmental costs $ 256,078 $ 906,635
Self-insurance accruals 860,201 917,877
Vacation accruals 314,368 425,826
State income taxes 321,615 421,475
Other 229,487 165,994
$1,981,749 $2,837,807
Deferred tax assets (liabilities) -
noncurrent:
State income tax net operating loss
carryforwards net of valuation
allowance $ 427,378 $ 501,028
State income taxes (251,902) (135,196)
$ 175,476 $ 365,832
Deferred tax (assets) liabilities -
noncurrent:
Pension credits $2,504,006 $2,648,452
Plant shutdown, idle facilities and
environmental costs (1,459,287) (1,844,027)
Other (79,640) (51,340)
$ 965,079 $ 753,085
At December 31, 1994 and 1993, the Company had state income tax benefits of
$1,023,000 and $1,141,000, respectively, from net operating loss carryforwards
that expire in various years through 2008. For financial reporting purposes,
valuation allowances of $596,000 and $640,000 at December 31, 1994 and 1993,
respectively, were recognized for net operating loss carryforwards not
anticipated to be realized before expiration.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
Details of the provision (benefit) for income taxes in the consolidated
statements of operations are as follows:
1994 1993 1992
Current taxes
Federal $ 900,000 $ 574,000 $ 1,173,000
State and other 331,000 450,000 272,000
1,231,000 1,024,000 1,445,000
Deferred income tax
charge (credit)
Federal 950,000 (378,000) 1,562,000
State 156,000 ( 95,000) 267,000
25
1,106,000 (473,000) 1,829,000
Total 2,337,000 551,000 3,274,000
Allocated to
discontinued operations - (1,041,000) -
Cumulative effect to
January 1, 1993 of
change in accounting
for income taxes - (66,000) -
Continuing operations $ 2,337,000 $ 1,658,000 $ 3,274,000
The deferred income tax charge in 1994 results primarily from payments for
certain plant shutdown, idle facilities and environmental costs accrued in prior
years.
The deferred income tax credit in 1993 results primarily from provisions for
certain plant shutdown, idle facilities and environmental costs in excess of
payments for these costs, reduced by deferred income tax charges of $259,000 for
pension credits and self-insurance accruals.
The deferred income tax charge in 1992 results primarily from certain plant
shutdown costs accrued in prior years and paid in 1992.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
A reconciliation of the total provision for income taxes with amounts determined
by applying the statutory U.S. federal income tax rate to combined income (loss)
from continuing and discontinued operations before income tax provision is as
follows:
1994 1993 1992
Income tax provision at
statutory rate $ 2,022,000 $ 495,000 $ 2,892,000
Add (deduct):
State income taxes, net of
federal income tax provision 321,000 109,000 356,000
Cumulative effect to
January 1, 1993 of change in
accounting for income taxes - (66,000) -
Other, net (6,000) 13,000 26,000
Total income tax provision $ 2,337,000 $ 551,000 $ 3,274,000
Income taxes paid for each of the three years in the period ended December 31,
1994 amounted to $1,610,000, $1,131,000 and $1,454,000, respectively. Income
tax refunds received during the three years in the period ended December 31,
1994 amounted to $319,000, $831,000 and $6,859,000, respectively.
6. Retirement Plans
The Company has several non-contributory defined benefit plans covering
approximately 32% of its employees. Benefits for salaried plans are generally
based on salary and years of service, while hourly plans are based upon a fixed
benefit rate in effect at retirement date and years of service. The Company's
funding of the plans is equal to the minimum contribution required by ERISA.
26
Contributions to defined benefit plans totaled $108,435 in 1994 with no payments
in 1993 and 1992.
The net pension (credits) in 1994, 1993 and 1992 are comprised of:
1994 1993 1992
Service cost $ 376,000 $ 388,000 $ 417,000
Interest cost on projected
benefit obligations 3,003,000 3,005,000 2,979,000
Actual return on Plan assets 823,000 (3,638,000) (2,786,000)
Net amortization and
deferral (4,355,000) (59,000) (983,000)
Net pension (credit) $ (153,000) $ (304,000) $ (373,000)
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
The following table sets forth the plans' funded status and amounts recognized
in the balance sheet at December 31:
1994 1993
Actuarial present value of benefit
obligations
Vested $ 36,397,643 $ 38,683,950
Non-vested 587,679 692,747
Total accumulated benefit obligations $ 36,985,322 $ 39,376,697
Projected benefit obligations for services
rendered to date $ 38,675,554 $ 41,224,330
Plan assets at fair value, primarily U.S.
Government securities and publicly traded
stocks and bonds 39,315,399 43,403,750
Plan assets in excess of projected
benefit obligations 639,845 2,179,420
Effect of change in assumptions,
net gains and losses 10,050,722 9,038,445
Unrecognized net excess plan assets
at January 1, 1986 being recognized
over approximately 15 years (2,747,826) (3,428,299)
Prepaid pension asset $ 7,942,741 $ 7,789,566
The assumptions used in determining the actuarial present value of projected
benefit obligations were as follows:
1994 1993 1992
Discount rate 8.5% 7.5% 8.0%
Rate of increase in future
compensation levels 5.5% 5.5% 5.5%
Expected long-term rate
of return on assets 8.0% 8.0% 8.0%
27
The Company has several defined contribution plans covering approximately 69% of
its employees. The defined contribution plans have funding provisions which, in
certain situations, require Company contributions based upon formulae relating
to employee gross wages, participant contributions or hours worked. The defined
contribution plans also allow for additional discretionary Company contributions
based upon profitability. The costs of these plans included in continuing
operations for 1994, 1993 and 1992 were $839,000, $714,000 and $1,185,000,
respectively.
The Company makes medical insurance available and provides limited amounts of
life insurance to retirees. Retirees electing to be covered by Company
sponsored health insurance pay the full cost of such insurance. For 1994 and
1993, the Company accrued the cost of the retiree life insurance benefits in
relation to the employee's service with the Company. Prior to 1993, the cost
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
of retiree life benefits were recognized when employees retired or facilities
closed. Cost of postretirement benefits other than pensions for the years ended
December 31, 1994, 1993 and 1992 were $44,000, $86,000 and $199,000,
respectively.
7. Business Segments
The Company is a specialty metals manufacturer. For financial reporting
purposes, the Company classifies its products into the following two business
segments:
Industrial Tools:
Tungsten carbide cutting tools, milling tools, toolholding devices, mining tools
and accessories, construction tools, wear parts and related industrial parts.
Metal Fabrications:
Titanium, nickel base and high alloy steel forgings; aluminum and magnesium sand
mold castings; special wire products and investment castings.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
Financial information concerning the Company's segments for the years ended
December 31, 1994, 1993 and 1992 is as follows:
1994 1993 1992
NET SALES:
INDUSTRIAL TOOLS -
Sales $ 43,558,081 $ 38,607,023 $ 42,193,615
Intersegment sales - (2,934) (15,169)
43,558,081 38,604,089 42,178,446
METAL FABRICATIONS -
28
Sales 45,783,951 50,796,887 85,013,581
Intersegment sales (54,696) (13,490) (47,188)
45,729,255 50,783,397 84,966,393
$ 89,287,336 $ 89,387,486 $127,144,839
OPERATING INCOME (LOSS):
INDUSTRIAL TOOLS $ 2,856,607 $ 1,998,794 $ 1,677,023
METAL FABRICATIONS 1,809,048 576,534 5,947,435
CORPORATE (13,250) (17,198) (30,239)
$ 4,652,405 $ 2,558,130 $ 7,594,219
Intersegment sales are accounted for at prices equivalent to the competitive
market prices for similar products. Atlantic Research Corporation was a
principal customer of the Company's Precision Sheet Metal (PSM) facility within
the Metal Fabrications business segment and accounted for 11% of the Company's
net sales for the year ended December 31, 1992.
The PSM facility in Los Angeles, California, completed the phase-out of all
operations during 1993. The effect of this action did not have a significant
impact on the Company's financial position. The net sales of PSM for the years
ended December 31, 1993 and 1992 were $1,016,000 and $30,880,000, respectively.
Operating income for the year ended December 31, 1992 was $3,156,000. The
change in the reserve to state certain inventories at LIFO cost due to LIFO
inventory liquidations increased operating income by $3,085,000 for the year
ended December 31, 1992. Gain of $2,238,000 from disposal of PSM equipment in
1993 was deferred to cover anticipated plant shutdown costs. Identifiable
assets of PSM included $1,361,000 for property and plant which are carried in
Other Non-Current Assets at December 31, 1994. Depreciation on the property,
plant and equipment was $119,000 and $482,000 for the years ended December 31,
1993 and 1992, respectively.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
Operating income of the Industrial Tools business segment in 1992 includes
profits from LIFO inventory liquidations for the change in the reserve to state
certain inventories at LIFO cost of $802,000.
Operating income of the Metal Fabrications business segment in 1992 includes
profits from LIFO inventory liquidations for the change in the reserve to state
certain inventories at LIFO cost of $3,070,000.
The percentages of net sales for classes of similar products which exceeded ten
percent of the Company's consolidated net sales, for the period indicated, are
set forth below:
Percentage of
Consolidated Net Sales
Products Business Segments 1994 1993 1992
Tungsten carbide
cutting tools Industrial Tools 29% 25% 18%
Pressure vessels Metal Fabrications -% 1% 15%
Nonferrous forgings Metal Fabrications 12% 8% 11%
29
Investment castings Metal Fabrications 13% 7% 7%
The identifiable assets, depreciation and capital expenditures for the years
ended December 31, 1994, 1993 and 1992 are as follows:
1994 1993 1992
Identifiable assets
Industrial Tools $14,007,160 $12,212,684 $12,135,501
Metal Fabrications 22,089,022 23,235,416 30,547,941
Corporate/Discontinued 36,784,736 37,843,234 35,623,265
Total assets $72,880,918 $73,291,334 $78,306,707
Depreciation
Industrial Tools $ 716,800 $ 692,728 $ 455,649
Metal Fabrications 1,258,238 1,505,457 1,679,466
Corporate/Discontinued - - -
Total depreciation $ 1,975,038 $ 2,198,185 $ 2,135,115
Capital expenditures
Industrial Tools $ 1,055,600 $ 109,310 $ 654,811
Metal Fabrications 598,853 326,687 533,355
Corporate/Discontinued - - -
Total capital expenditures $ 1,654,453 $ 435,997 $ 1,188,166
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
8. Lease Commitments
The Company leases data processing, transportation and other equipment, as well
as certain facilities, under operating leases. Such leases do not involve
contingent rentals, nor do they contain significant renewal or escalation
clauses.
Total minimum future rentals under noncancelable leases at December 31, 1994
were $1,540,000, including $584,000 in 1995, $510,000 in 1996, $259,000 in 1997,
$185,000 in 1998, and $2,000 in 1999 and thereafter. Rental expense of the
continuing operations was $1,187,000 in 1994, $2,024,000 in 1993, and $2,091,000
in 1992.
Property, plant and equipment included $312,000 and $198,000 in machinery and
equipment from capital leases at December 31, 1994 and 1993, respectively.
Future minimum payments including interest are $104,000 in 1995, $98,000 in 1996
and $9,000 in 1997.
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(thousands of dollars except
per share data) Mar. 31, Jun. 30 , Sep. 30, Dec. 31,
1994
Net sales $ 21,813 $ 22,053 $ 22,319 $ 23,102
Gross profit 4,288 4,413 4,121 4,432
30
Net income 853 844 1,012 900
Net income per common share .10 .10 .12 .10
1993
Net sales $ 23,526 $ 23,281 $ 21,831 $ 20,749
Gross profit 4,265 4,131 3,681 3,731
Income from continuing
operations 910 645 367 594
Net income (loss) 976 645 367 (1,082)
Income per common share from
continuing operations .10 .08 .04 .07
Net income (loss) per common
share .11 .08 .04 (.12)
The third quarter, 1994 net income included $152,000 net gain on the sale of
property at the Precision Sheet Metal (PSM) facility, the operations of which
were phased out in 1993.
The fourth quarter, 1993 net income was reduced by a loss from discontinued
operations of $1,676,000 from the revaluation of environmental liabilities from
present value to gross cost.
Amounts presented above for 1993 have been adjusted from those previously
reported to conform with the 1994 classifications.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors and executive
officers is included in Part I page 8.
Additional information concerning the Company's directors is
incorporated by reference to information under the caption
"Nominees for Election as Directors" in the Company's
definitive proxy statement for the annual meeting of
shareholders to be held on April 26, 1995.
ITEM 11 - EXECUTIVE COMPENSATION
Incorporated herein by reference to information under the
caption "Compensation of Directors and Executive Officers" in
the Company's definitive proxy statement for the annual
meeting of shareholders to be held on April 26, 1995.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a)(b)(c) The information required by this Item 12 is incorporated
herein by reference to the information under the captions
"Voting Securities and Principal Holders Thereof" and
"Nominees for Election as Directors" in the Company's
definitive proxy statement for the annual meeting of
shareholders to be held on April 26, 1995.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the information under the
caption "Nominees for Election as Directors" in the Company's
definitive proxy statement for the annual meeting of
31
shareholders to be held on April 26, 1995.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
(a)(1) Index to Consolidated Financial Statements:
Form 10-K
Page
Report of Independent Auditors. 18
Consolidated Statement of Operations for each
of the three years in the period ended
December 31, 1994. 19
Consolidated Balance Sheet at December 31,
1994 and 1993. 20-21
Consolidated Statement of Cash Flows for each
of the three years in the period ended
December 31, 1994. 22-23
Consolidated Statement of Shareholders'
Equity for each of the three years in the
period ended December 31, 1994. 24
Notes to Consolidated Financial Statements. 25-38
Summary Quarterly Financial Data for the
years ended December 31, 1994 and 1993. 38
(a)(2) Index to Consolidated Financial Statement Schedule:
Consolidated Financial Statement Schedule
for each of the three years ended
December 31, 1994:
II. Valuation and qualifying accounts 41
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission
of the schedule, or because the information required is included in
the Consolidated Financial Statements and Notes thereto.
(a)(3) The following exhibits required by Item 601 of Regulation S-K
are submitted as follows:
Exhibit 3.1 - Certificate of Incorporation
Exhibit 3.2 - By-Laws
Exhibit 22 - Subsidiaries of the Registrant
All other exhibits are omitted since the required information is not
present or is not present in amounts sufficient to require submission.
(b) No reports have been filed on Form 8-K during the last quarter
of the year ended December 31, 1994.
32
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Balance
Beginning Cost and Deductions at End
of Year Expenses (1) of Year
Allowance for Doubtful
Accounts:
Year ended 12/31/94 $ 276,440 $ (21,929) $ (21,929) $ 276,440
Year ended 12/31/93 $ 324,440 $ 57,464 $ 105,464 $ 276,440
Year ended 12/31/92 $ 324,440 $ 403,206 $ 403,206 $ 324,440
(1) Accounts written off, net of recoveries.
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.
FANSTEEL INC.
Registrant
Date: March 6, 1995 By: \s\ Keith R. Garrity
Keith R. Garrity, Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on the dates indicated:
Signature Title Date
Director, Chairman of the
Board and Chief Executive
\s\ Keith R. Garrity Officer March 6, 1995
Keith R. Garrity
Vice President and Chief
\s\ R. Michael McEntee Financial Officer March 6, 1995
R. Michael McEntee
\s\ Betty B. Evans Director March 13, 1995
Betty B. Evans
\s\ Edward P. Evans Director March 23, 1995
Edward P. Evans
\s\ R. S. Evans Director March 21, 1995
Robert S. Evans
\s\ T. M. Evans Director March 13, 1995
Thomas M. Evans
33
\s\ Thomas M. Evans, Jr. Director March 27, 1995
Thomas M. Evans, Jr.
\s\ Jack S. Petrik Director March 17, 1995
Jack S. Petrik
\s\ C. J. Queenan, Jr. Director March 7, 1995
Charles J. Queenan, Jr.
INDEX TO EXHIBITS
The following Exhibits to this report are filed herewith or, if marked with an
asterisk (*), are incorporated by reference:
Exhibit Prior Filing or Sequential
No. Page Number Herein
3.1 Certificate of Incorporation Company's Form 10-K filed
March 31, 1993 (*)
3.2 By-Laws Annex II to the Company's
annual proxy statement
dated March 15, 1985,
File No. 1-8676 (*)
22 Subsidiaries of the Registrant 44
34
EXHIBIT 22 - SUBSIDIARIES OF THE REGISTRANT
The subsidiaries of Fansteel Inc. and their state or country of incorporation
are as follows:
State or Country
Name of Subsidiary of Incorporation
Custom Technologies Corporation Delaware
Wellman Dynamics (1) Delaware
Escast, Inc. (1) Illinois
Washington Manufacturing (1) Delaware
Fansteel Holdings Incorporated Delaware
Fansteel Sales Corporation, Inc. Barbados
(1) These entities are wholly-owned subsidiaries of Custom Technologies
Corporation.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Fansteel Inc. as of December 31, 1994 and the
related consolidated statement of operations for the year ended December 31,
1994 and is qualified in its entirety by reference to the Company's Form 10K
filing for 1994.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 9,429,031
<SECURITIES> 293,367
<RECEIVABLES> 13,316,048
<ALLOWANCES> 276,440
<INVENTORY> 12,780,549
<CURRENT-ASSETS> 38,482,569
<PP&E> 52,899,015
<DEPRECIATION> 43,535,103
<TOTAL-ASSETS> 72,880,918
<CURRENT-LIABILITIES> 17,381,991
<BONDS> 0
<COMMON> 21,497,145
0
0
<OTHER-SE> 28,674,646
<TOTAL-LIABILITY-AND-EQUITY> 72,880,918
<SALES> 89,287,336
<TOTAL-REVENUES> 89,287,336
<CGS> 72,033,115
<TOTAL-COSTS> 84,634,931
<OTHER-EXPENSES> (1,293,973)
<LOSS-PROVISION> (21,929)
<INTEREST-EXPENSE> 17,769
<INCOME-PRETAX> 5,946,378
<INCOME-TAX> 2,337,000
<INCOME-CONTINUING> 3,609,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,609,378
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
