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, 1995
( ) 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 (847) 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 12, 1996 was $30,632,850.
8,598,858
(Number of shares of common stock outstanding as of February 12, 1996)
Part III incorporates information by reference from the Company's definitive
proxy statement for the annual meeting of shareholders to be held on April 24,
1996.
The total number of pages in this Form 10-K is 48 with the exhibit index being
on page 47.
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 year ended December 31,
1993 were $1,016,000. Identifiable assets of PSM included
$1,201,000 for property and plant held for sale which are
carried in Other Non-Current Assets at December 31, 1995.
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 28 through 42.
(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 1995 1994 1993
Tungsten carbide
cutting tools Industrial Tools 31% 29% 25%
Non-ferrous
forgings Metal Fabrications 11 12 8
Investment
castings Metal Fabrications 12 13 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
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
2
dollar sales volume. Magnesium is in short supply on the
world market and has led to price increases in the past year,
with additional price increases forecast for 1996. At this
time, production is not expected to be inhibited by the short
supply of magnesium available. 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) The Company serves a wide variety of industries. No one
individual customer accounts for a significant portion of the
Company's overall business.
Substantial sales for those operating units within the Metal
Fabrications segment servicing the aerospace market are
concentrated in a relatively small customer base. The loss of
any individual customer within this base could have an adverse
effect on the segment. Relations with these customers have
existed for years and the Company believes them to be sound.
ITEM 1 - BUSINESS (Contd.)
(c)(1)(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,
1995 1994
Industrial Tools $ 6,197 $ 4,487
Metal Fabrications 25,711 22,787
$ 31,908 $ 27,274
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, 1995 will be shipped before the end of 1996.
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
the differences in lead-time for filling orders among the
3
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 $97,000 to continuing operations in 1995
for costs related to compliance with government environmental
regulations. Capital expenditures in 1995 included $368,000
at the Wellman Dynamics facility in Creston, Iowa for thermal
sand reclamation equipment to comply with state environmental
regulations, and $77,000 at the Washington Manufacturing
facility in Washington, Iowa for a waste water treatment
addition to comply with state and local environmental
regulations.
During 1995, the Company charged $51,000 for continuing
operations against reserves for environmental reclamation
established in previous years. Reserves for environmental
reclamation were $591,000 for continuing operations at
December 31, 1995. 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 located on-site. 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 are adequate to
cover its share of the clean-up costs.
During 1995, the Company charged $1,221,000 for discontinued
operations against reserves for environmental reclamation and
decommissioning established in previous years. In addition,
the Company expended $822,000 for design and engineering costs
for the proposed processing plant. Reserves for environmental
4
reclamation and decommissioning were $3,857,000 for
discontinued operations at December 31, 1995. The Company, in
association with outside consultants, has developed a
decommissioning plan for the site involved, and has submitted
that plan and a related decommissioning funding plan to the
Nuclear Regulatory Commission ("NRC") as required by law.
Prior to decommissioning, the Company proposes to construct
and operate for approximately eight to ten years a commercial
plant to complete the processing of residues currently
contained in storage ponds at the site, which would materially
reduce the amount of radioactive materials to be disposed of
during decommissioning. In conjunction with construction of
the processing plant, the Company would modify the wastewater
treatment plant at the site and install a drainage system.
Decommissioning would be comprised of construction of an
engineered on-site cell for containment of contaminated soils;
consolidation and stabilization of the contaminated soils in
the containment cell; and the performance of required plant
surveys and characterizations after residue processing ceases
to determine whether additional contaminated soils exist which
may require remediation.
ITEM 1 - BUSINESS (Contd.)
(c)(1)(xii) The Company has applied for an amendment to its current NRC
license and for a revision to its current wastewater discharge
permit to allow construction and operation of the proposed
processing plant, and believes that these regulatory
authorizations will be issued in the near future. Preliminary
engineering, design and feasibility studies have been
completed for the proposed processing plant, which would
extract commercially valuable materials such as tantalum,
columbium, scandium and other rare earth and rare metal
elements from the feedstock residues. The Company has engaged
a process design expert to confirm the viability of the
proposed plant. The estimated cost of construction is
approximately $10 million. The estimated value of materials
to be extracted is based on analysis of samples taken from the
residues and a valuation 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 residue processing were
developed by Company personnel and independent consultants
using third party evaluations based on the pilot testing
performed. Residue processing is expected to start
approximately a year after licensing approval is received.
The provisions for discontinued operations reflect
management's belief that the current value of the extracted
materials will at least equal the estimated cost of
construction and costs of processing, including estimated
costs for disposal of waste generated by the process. The
annual recovery revenues are estimated to be in a range of
$2,000,000 to $3,000,000. However, there can be no assurance
as to the level of demand for certain of the extracted
materials or the actual prices which may be obtained for them,
which could vary over time.
In October 1995 the NRC advised the Company that a
decommissioning funding plan cost estimate based on on-site
disposal of most of the radioactive wastes at the site is
appropriate to consider at this time. The NRC cautioned the
Company, however, that on-site disposal may require
preparation of an Environmental Impact Statement and that, in
addition to the required NRC approval, local and other federal
5
agencies may have to be satisfied that the Company's disposal
plan is sound. Such approval process can be expected to
extend over a number of years. Management believes that a
decommissioning plan including on-site containment will
ultimately be acceptable to the appropriate regulatory
authorities, based on current and proposed NRC regulations and
a provision of the Nuclear Waste Policy Act of 1982 requiring
the Department of Energy to take title to certain "special
sites" which may include the Company's site; however, there is
no assurance that a plan providing for on-site containment
will ultimately be approved. Implementation of a
decommissioning plan for the Company's site which includes
off-site disposal may not be financially feasible.
ITEM 1 - BUSINESS (Contd.)
(c)(1)(xii) The NRC's decommissioning regulations require licensees to
estimate the cost for decommissioning and to assure in advance
that adequate funds will be available to cover those costs.
NRC regulations identify a number of acceptable methods for
assuring funds for decommissioning, including surety
instruments such as letters of credit, cash deposits and
combinations thereof. The NRC's October letter requested the
Company to submit a decommissioning funding plan contemplating
on-site containment and stated that the cost of residue
processing should be included in the Company's cost estimate.
The Company is currently developing such a plan. The initial
level of assurance for decommissioning and construction is
estimated to be at least $15 million. This estimate assumes
that the Company will not be required to assure the operating
costs of residue processing. The Company's available cash
and/or borrowing capacity will be reduced by the amount of
funding assurance as required at any particular time. As the
decommissioning plan is implemented, deposited funds or the
amount of any surety instruments may be reduced, provided the
Company can demonstrate the sufficiency of the remaining funds
or surety to assure the completion of decommissioning.
Based upon continuing assessment of the proposed
decommissioning plan, taking into consideration the most
current information, existing technology and regulations in
effect, management believes that the amounts reserved at
December 31, 1995 are adequate to cover the costs of
environmental clean-up for discontinued operations and that
the Company has the ability to meet the NRC's decommissioning
funding assurance requirements.
The Company's intent is to comply with all applicable federal
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 911 persons as of December 31, 1995.
6
(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 1,000 99,000
Tools
Los Angeles, California Metal 48,000 5,000 53,000
Fabrications
Sarasota, Florida Metal 6,000 0 6,000
Fabrications
Addison, Illinois Metal 0 46,000 46,000
Fabrications
Creston, Iowa Metal 293,000 0 293,000
Fabrications
Washington, Iowa Metal 86,000 0 86,000
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, except the Lexington
facility, which is operating at 90% utilization.
The Company owns properties in North Chicago, Illinois and
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 Non-
Current Assets.
The Company's executive offices are located in North Chicago,
Illinois.
ITEM 3 - LEGAL PROCEEDINGS
7
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.
However, the Company is involved in certain regulatory
proceedings involving environmental matters which are
discussed in Note 4 to the Consolidated Financial Statements
contained in Item 8 hereof.
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 1995.
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
William D. 43 Director; President and Chief 3 1
Jarosz Executive Officer
Betty B. 72 Director; Director of HBD 12 12
Evans Industries, Inc.
Robert S. 51 Director; Chairman and Chief 4 4
Evans Executive Officer, Crane Co.;
Chairman and Chief Executive
Officer, Medusa Corp.
Thomas M. 58 Director; Personal Investments 10 10
Evans, Jr.
R. Michael 42 Vice President and Chief 16 5
McEntee Financial Officer
Michael J. 42 Vice President, General Counsel 10 9
Mocniak and Secretary
Jack S. 66 Director; Vice President and 11 11
Petrik Director (Retired), Turner
Broadcasting System, Inc.
Charles J. 65 Director; Kirkpatrick and 14 14
Queenan, Jr. Lockhart (Attorneys)
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 24, 1996.
PART II
8
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 12,
1996 were 883.
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
1995:
First Quarter $7 3/8 $6 1/8 $.10
Second Quarter 7 1/8 6 3/8 .10
Third Quarter 8 1/4 6 3/4 .10
Fourth Quarter 7 1/2 5 3/4 -
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
The Company announced on November 10, 1995 the suspension of
its regular quarterly cash dividend pending review of its
dividend policy relative to comparable publicly traded
companies and its capital requirements. The Company believes
it is in the best interests of shareholders to conserve
capital in light of anticipated acquisitions and production
facility expansions as well as uncertainties surrounding
funding requirements for decommissioning at the Company's
discontinued operations at Muskogee, Oklahoma. While the
Company believes that its current reserve for environmental
clean-up for discontinued operations is adequate, it decided
to take this action pending greater certainty as to the costs
which ultimately may be incurred.
ITEM 6 - SELECTED FINANCIAL DATA
Selected financial data for the Company for the five year period ended December
31, 1995 are as follows:
Years Ended December 31,
(thousands of dollars
except per share data) 1995 1994 1993 1992 1991
Operating Results
Net Sales $102,598 $ 89,287 $ 89,387 $127,145 $134,943
Income (Loss) from
Continuing Operations 3,333 3,609 2,516 5,232 (9,238)
(Loss) from
Disc. Operations - - (1,676) - (4,118)
Net Income (Loss) 3,333 3,609 906 5,232 (13,356)
Per Share of Common
9
Stock:
Income (Loss) from
Continuing
Operations .39 .42 .29 .61 (1.07)
(Loss) from
Discontinued
Operations - - (.19) - (.48)
Net Income (Loss) .39 .42 .11 .61 (1.55)
Cash Dividends .30 .40 .40 .50 .50
Shareholders' Equity 5.93 5.83 5.82 6.12 6.01
Financial Position
Working capital $ 21,862 $ 21,101 $ 36,321 $ 34,071 $ 34,518
Net property, plant
and equipment 10,220 9,364 9,661 13,776 14,891
Total assets 74,530 72,881 73,291 78,307 81,483
Long-term debt 298 - - 600 1,575
Shareholders' equity 51,023 50,172 50,083 52,617 51,684
Other Data
Common shares
outstanding 8,598,858 8,598,858 8,598,858 8,598,858 8,598,858
Number of
shareholders 891 1,055 1,094 1,099 1,122
Number of employees 911 867 799 955 1,190
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 - 1995 Compared to 1994
Net sales for the year ended December 31, 1995 were $102,598,000, an increase of
$13,311,000 over 1994 net sales of $89,287,000.
Industrial Tools business segment net sales for 1995 were $50,069,000 compared
to $43,558,000 for 1994, an increase of $6,511,000 or 15%. Sales of tungsten
carbide cutting tools, primarily tungsten carbide rod, increased 25% in the
current year. Tungsten carbide rod sales volume was positively affected through
aggressive marketing and supply techniques. Availability of product demanded by
customers was accomplished with strategic location of warehouses and consignment
of inventory to major customers. Tungsten carbide inserts also expanded its
customer base. The introduction and marketing of new products within this
product line positively impacted 1995 sales. Mining tool sales were virtually
unchanged. Sales of construction tools were sluggish in 1995. Quality
improvements were made, and the product was price competitive, but sales efforts
were unsuccessful in reaching a broader market.
Metal Fabrications business segment net sales for the year ended December 31,
1995 were $52,529,000, an increase of $6,800,000 or 15% over 1994 net sales of
$45,729,000. Sand mold castings product line sales increased 22% over the prior
year. Aircraft engine casting sales rose in 1995 due to an improved market.
Sales of castings for various helicopter programs also increased in 1995. Sales
of small aircraft engine components improved in 1995 as new production processes
introduced in 1994 led to penetration in the commercial market. Forgings
product line sales were ahead of the 1994 pace by 38% as sales to commercial
aircraft manufacturers increased. Sales of investments castings improved 8% in
the current year due to expansion in the domestic manufacturing economy,
particularly truck manufacturing. However, recent indications signal a
10
reduction in the production of trucks, thus causing a slowdown in the demand for
castings. Sales of wire formed products, with a concentration in lawn and
garden products, were down slightly in 1995.
Backlog of orders at December 31, 1995 was $31,908,000, compared to $27,274,000
at December 31, 1994, an increase of $4,634,000 or 17%. Industrial Tools
business segment backlog at December 31, 1995 was $6,197,000, an increase of
$1,710,000 from one year ago. Introduction of new products within the tungsten
carbide inserts product line, specifically VR/Notch inserts and diamond tipped
inserts, led to an increase in customer orders in 1995. Orders from producers
of synthetic diamonds led to a backlog increase in other wear parts product line
in 1995. Tungsten carbide rod product line attracted orders, increasing the
backlog of this product line 164%. Backlog of construction tools product line
grew with improved promotion of a quality product. Wear drill parts and nozzle
product lines were adversely affected by a decline in the oil industry. Metal
Fabrications business segment backlog at December 31, 1995 was $25,711,000, an
increase of $2,924,000 from December 31, 1994. Forgings product line backlog
was up $2,865,000 due to improved commercial aircraft market conditions, and
continuing strength of the medical instruments industry. Product lines
utilizing the sand mold castings process also increased backlog at December 31,
1995. The introduction of the cell manufacturing concept in 1994 resulted in an
increase of commercial orders for small aircraft cylinder heads. Orders for
older helicopter castings also had a beneficial effect on year end backlog. New
programs for 1996 are also reflected in the backlog increase. Orders for
commercial aircraft structural components and helicopter gear housings
strengthened the December 31, 1995 backlog. Investment castings product line
backlog was off substantially from December 31, 1994. Stiff price competition
in a tentative economy has had a negative effect on this product line with a
quick turn-around not expected. Wire forming experienced a slight decrease in
backlog at year end in comparison to December 31, 1994 as lawn and garden
customers have become more adapted to just-in-time ordering.
Cost of products sold for the year ended December 31, 1995 was $84,952,000,
compared to $72,033,000 for the same period of 1994, which is an increase of
$12,919,000 or 18%. Cost of sales as a percent of net sales for the year ended
December 31, 1995 was 82.8% compared to 80.7% for the same period of last year.
Unusual items in cost of products sold included a large workers' compensation
expense of $250,000 in 1995 and a cost recovery of $433,000 from processing
thoriated magnesium in 1994. Cost of sales as a percent of net sales before
unusual items was 82.6% for 1995 compared to 81.2% for 1994. Raw material price
increases, not all of which could be passed on to customers, negatively impacted
profit margins.
Selling, general and administrative expenses for the year ended December 31,
1995 was $13,211,000, an increase of $609,000 or 5% from 1994 expenses of
$12,602,000. Selling, general and administrative expenses as a percent of net
sales for 1995 were 12.9% compared to 14.1% for 1994. Efforts to contain
expenses, through improved efficiencies and concentrated cost controls, resulted
in the lower expense to sales ratio in 1995. Expansion of sales volume while
restraining expenses is a continuing objective of the Company.
Operating income for the year ended December 31, 1995 was $4,435,000 compared to
$4,652,000, a decrease of $217,000 or 5%. Operating income as a percent of net
sales for 1995 was 4.3% compared to 5.2% for 1994. Industrial Tool business
segment operating income for 1995 was $3,109,000, an increase of $253,000 from
the prior year. Increase sales volume had a beneficial effect on operating
income in 1995; however, this was partially offset by rising raw material
prices. Metal Fabrications business segment operating income for 1995 was
$1,370,000, a decrease of $439,000 from 1994 results. A one-time cost recovery
from residue material skewed the 1994 results, while an unusual workers'
compensation claim negatively affected the 1995 operating income.
Other income for the year ended December 31, 1995 was $1,079,000, a decrease of
$215,000 from 1994 other income of $1,294,000. Other income for 1994 included a
11
$251,000 gain on the sale of property related to an operation closed in 1993.
Interest earned, principally on marketable securities, for 1995 was $1,216,000,
an increase of $162,000 from the prior year. A rise in short term interest
rates improved the income performance of marketable securities.
Net income for the year ended December 31, 1995 was $3,333,000 or $.39 per
share, compared to $3,609,000 or $.42 per share for the year ended December 31,
1994.
Inflation factors did not, and generally do not, significantly affect the
overall operations of the Company.
Results of Operations - 1994 Compared to 1993
Net sales for the year ended December 31, 1994 were $89,287,000 which was 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 was primarily due to the
tungsten carbide cutting tools product lines, which include inserts, rod,
blanks, and Tantung. Tungsten carbide cutting tools sales for 1994 were higher
than 1993 by 14%. Also demonstrating sales improvement within this business
segment in 1994 were the tungsten carbide wear parts product lines. These
product lines, which include nozzles and compacts, and die blanks and bushings,
increased 48% compared to 1993 sales. Together, tungsten carbide wear parts and
tungsten carbide cutting tools accounted for 78% of sales in this business
segment in 1994. A factor in the sales increase was 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 and tungsten carbide cutting
tools product lines provided 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 competition. Construction products were adversely affected by inadequate
market coverage. During 1994, the Company changed its sales strategy for
construction tools from a direct sales force to agents and manufacturer
representatives.
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, were
introduced in the sand mold castings product lines to further the application of
these product lines to commercial industries. Additional sales agents were
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, 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 had been strong
for several years with consistent growth.
12
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 had 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 was not indicative of a broad recovery in this market. The
increase in backlog for sand mold castings, however, was 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%
compared to 82.1% for the year ended December 31, 1993. The decrease in cost of
products sold was 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, 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 sales volume
had a positive effect on the profitability of the Company.
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.
13
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.
Outlook
Modernization of the Company's production processes, new product development,
and investment in capital equipment have established a foundation for growth,
directed primarily at commercial markets. The Company is seeking opportunities
to increase market share, through reinvestment in current operating units and
new acquisitions. The Company has utilized, and is constantly seeking, funding
assistance on favorable terms from states and municipalities for expansion of
production capabilities. Cost control programs remain active in all operating
plans throughout the Company.
The formerly defense-dependent operating units are continuing to place primary
focus on a transition to a diversified supplier of both military and commercial
markets. Capital equipment investment has been initiated and modernized
production techniques employed to facilitate this transition. These operating
units are beginning to realize the benefits from these efforts as increased
sales and orders have materialized.
Liquidity and Capital Resources
Cash and cash equivalents amounted to $6,839,000 at December 31, 1995, a
decrease of $2,590,000 from December 31, 1994. In keeping with its objective to
expand market share through reinvestment, the Company authorized the usage of
$2,855,000 of cash for capital expenditures. Proceeds from long-term debt of
$392,000, specifically from loans received from State of Iowa Development
Programs, were received in 1995 for the expansion of facilities located in that
state. In addition, while dividends of $2,580,000 were paid in 1995, the
Company announced in the fourth quarter of 1995 the suspension of its quarterly
dividend for the purpose of reserving cash for capital reinvestment, possible
future acquisitions, and due to uncertainty regarding funding requirements for
decommissioning at the Company's discontinued operation in Muskogee, Oklahoma.
Cash of $822,000 was used for the design and engineering of a processing plant
related to this discontinued operation for the reclamation of commercially
valuable materials. Operations provided $3,387,000 of cash, including net
income and depreciation of $3,333,000 and $1,999,000, respectively. As
evidenced by accounts receivable increasing $1,257,000 and inventories
increasing $1,735,000, working capital needs increased due to higher sales thus
reducing available cash.
It is expected that sufficient cash will be generated from operations to cover
normal operating requirements. If the need arises, the Company has strong,
long-term relationships with several large banking institutions.
Funding assistance by states and municipalities is investigated when any
significant expenditures are proposed. Loans were received in 1995 from State
of Iowa Development Programs for production improvements and modernization at
our sand mold casting and wire forming operations.
At December 31, 1995, the Company had $2,073,000 of current marketable
securities and $3,628,000 of non-current marketable securities, classified as
available-for-sale, invested in U.S. government securities, municipal bonds and
commercial paper. The liquidity of these securities is readily available. The
non-current marketable securities classified as held-to-maturity, with a book
value of $9,981,000 and a fair value of $10,042,000, are U.S. Treasury Notes.
14
The intent of the Company is to hold these notes to maturity.
At December 31, 1995, the Company had established reserves of $3,857,000 for
environmental clean-up costs for discontinued operations. The Company, in
association with outside consultants, has developed a decommissioning plan for
the site involved, and has submitted that plan and a related decommissioning
funding plan to the Nuclear Regulatory Commission ("NRC") as required by law.
Prior to decommissioning, the Company proposes to construct and operate for
approximately eight to ten years a commercial plant to complete the processing
of residues currently contained in storage ponds at the site, which would
materially reduce the amount of radioactive materials to be disposed of during
decommissioning. In conjunction with construction of the processing plant, the
Company would modify the wastewater treatment plant at the site and install a
drainage system. Decommissioning would be comprised of construction of an
engineered on-site cell for containment of contaminated soils; consolidation and
stabilization of the contaminated soils in the containment cell; and the
performance of required plant surveys and characterizations after residue
processing ceases to determine whether additional contaminated soils exist which
may require remediation.
The Company has applied for an amendment to its current NRC license and for a
revision to its current wastewater discharge permit to allow construction and
operation of the proposed processing plant, and believes that these regulatory
authorizations will be issued in the near future. Preliminary engineering,
design and feasibility studies have been completed for the proposed processing
plant, which would extract commercially valuable materials such as tantalum,
columbium, scandium and other rare earth and rare metal elements from the
feedstock residues. The Company has engaged a process design expert to confirm
the viability of the proposed plant. The estimated cost of construction is
approximately $10 million. The estimated value of materials to be extracted is
based on analysis of samples taken from the residues and a valuation 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
residue processing were developed by Company personnel and independent
consultants using third party evaluations based on the pilot testing performed.
Residue processing is expected to start approximately a year after licensing
approval is received. The provisions for discontinued operations reflect
management's belief that the current value of the extracted materials will at
least equal the estimated cost of construction and costs of processing,
including estimated costs for disposal of waste generated by the process. The
annual recovery revenues are estimated to be in a range of $2,000,000 to
$3,000,000. However, there can be no assurance as to the level of demand for
certain of the extracted materials or the actual prices which may be obtained
for them, which could vary over time.
In October 1995 the NRC advised the Company that a decommissioning funding plan
cost estimate based on on-site disposal of most of the radioactive wastes at the
site is appropriate to consider at this time. The NRC cautioned the Company,
however, that on-site disposal may require preparation of an Environmental
Impact Statement and that, in addition to the required NRC approval, local and
other federal agencies may have to be satisfied that the Company's disposal plan
is sound. Such approval process can be expected to extend over a number of
years. Management believes that a decommissioning plan including on-site
containment will ultimately be acceptable to the appropriate regulatory
authorities, based on current and proposed NRC regulations and a provision of
the Nuclear Waste Policy Act of 1982 requiring the Department of Energy to take
title to certain "special sites" which may include the Company's site; however,
there is no assurance that a plan providing for on-site containment will
ultimately be approved. Implementation of a decommissioning plan for the
Company's site which includes off-site disposal may not be financially feasible.
The NRC's decommissioning regulations require licensees to estimate the cost for
decommissioning and to assure in advance that adequate funds will be available
15
to cover those costs. NRC regulations identify a number of acceptable methods
for assuring funds for decommissioning, including surety instruments such as
letters of credit, cash deposits and combinations thereof. The NRC's October
letter requested the Company to submit a decommissioning funding plan
contemplating on-site containment and stated that the cost of residue processing
should be included in the Company's cost estimate. The Company is currently
developing such a plan. The initial level of assurance for decommissioning and
construction is estimated to be at least $15 million. This estimate assumes
that the Company will not be required to assure the operating costs of residue
processing. The Company's available cash and/or borrowing capacity will be
reduced by the amount of funding assurance as required at any particular time.
As the decommissioning plan is implemented, deposited funds or the amount of any
surety instruments may be reduced, provided the Company can demonstrate the
sufficiency of the remaining funds or surety to assure the completion of
decommissioning.
Expenditures for environmental reclamation and decommissioning were $1,221,000
in 1995. In addition, the Company expended $822,000 for design and engineering
costs for the proposed processing plant.
Based upon continuing assessment of the proposed decommissioning plan, taking
into consideration the most current information, existing technology and
regulations in effect, management believes that the amounts reserved at December
31, 1995 are adequate to cover the costs of environmental clean-up for
discontinued operations and that the Company has the ability to meet the NRC's
decommissioning funding assurance requirements.
The remaining land and buildings of the Company's former PSM operation within
the Metal Fabrications business segment 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 located on-site. 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
$591,000 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, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. 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
16
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
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, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995 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 19, 1996
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31,
1995 1994 1993
Net Sales $102,597,754 $ 89,287,336 $ 89,387,486
Cost and Expenses
Cost of products sold 84,951,756 72,033,115 73,579,091
Selling, general and
administrative 13,210,850 12,601,816 13,250,265
98,162,606 84,634,931 86,829,356
Operating Income 4,435,148 4,652,405 2,558,130
Other Income (Expense)
Interest income 1,229,317 1,076,740 1,383,941
Interest expense (15,577) (17,769) (277,826)
Other (134,957) 235,002 509,593
1,078,783 1,293,973 1,615,708
Income From Continuing
Operations Before Income Taxes 5,513,931 5,946,378 4,173,838
Income Tax Provision 2,181,000 2,337,000 1,658,000
Income From Continuing
Operations 3,332,931 3,609,378 2,515,838
(Loss) From Discontinued
Operations - - (1,676,000)
Income Before Cumulative
Effect of Accounting Change 3,332,931 3,609,378 839,838
Cumulative Effect to January 1,
17
1993 of Change in Accounting
for Income Taxes - - 66,000
Net Income $ 3,332,931 $ 3,609,378 $ 905,838
Income (Loss) Per Common Share
Continuing operations $.39 $.42 $.29
Discontinued operations - - (.19)
Cumulative Effect of
Accounting Change - - .01
Net Income $.39 $.42 $.11
See Notes to Consolidated Financial Statements.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
CONSOLIDATED BALANCE SHEET
At December 31,
1995 1994
ASSETS
Current Assets
Cash and cash equivalents $ 6,838,960 $ 9,429,031
Marketable securities 2,072,902 293,367
Accounts receivable, less allowance of
$276,000 in 1995 and 1994 14,305,629 13,048,394
Inventories
Raw material and supplies 3,850,864 3,135,098
Work-in-process 11,610,410 11,376,665
Finished goods 5,942,269 5,256,355
21,403,543 19,768,118
Less:
Reserve to state certain inventories at
LIFO cost 6,888,236 6,987,569
Total inventories 14,515,307 12,780,549
Other assets - current
Deferred income taxes 1,452,160 1,981,749
Other 1,002,076 949,479
Total Current Assets 40,187,034 38,482,569
Net Assets of Discontinued Operations 1,344,591 522,637
Property, Plant and Equipment
Land 1,337,641 872,641
Buildings 9,396,838 8,721,261
Machinery and equipment 45,019,335 43,305,113
55,753,814 52,899,015
Less accumulated depreciation 45,533,604 43,535,103
Net Property, Plant and Equipment 10,220,210 9,363,912
Other Assets
Marketable securities 13,608,993 15,001,512
Prepaid pension asset 7,709,808 7,942,741
Deferred income taxes 227,317 175,476
Property held for sale 1,200,837 1,361,008
Other 31,063 31,063
Total Other Assets 22,778,018 24,511,800
$ 74,529,853 $ 72,880,918
18
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
CONSOLIDATED BALANCE SHEET (Contd.)
At December 31,
1995 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 9,162,757 $ 7,607,591
Accrued liabilities 8,391,200 9,716,919
Income taxes 694,247 57,481
Current maturities of long-term debt 77,207 -
Total Current Liabilities 18,325,411 17,381,991
Long-term Debt 297,906 -
Other Liabilities
Discontinued operations 3,500,000 4,255,000
Deferred income taxes 1,374,911 965,079
Obligations under capital leases 8,638 107,057
Total Other Liabilities 4,883,549 5,327,136
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 29,509,444 28,756,171
Unrealized gain (loss) on securities 16,398 (81,525)
Total Shareholders' Equity 51,022,987 50,171,791
$ 74,529,853 $ 72,880,918
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,
1995 1994 1993
Cash Flows From Operating
Activities
Net income $ 3,332,931 $ 3,609,378 $ 905,838
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 1,998,557 1,975,038 2,198,185
Net pension charge (credit) 232,933 (153,175) (333,114)
Deferred income tax charge
(credit) 887,580 1,301,924 (378,607)
Gain from disposals of
property, plant and equipment (7,750) (291,852) (270,678)
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
19
securities (289,093) (169,988) (169,225)
(Increase) decrease in
accounts receivable (1,257,235) (722,584) 3,792,044
Decrease in income tax
refunds receivable - 208,450 646,805
(Increase) decrease in
inventories (1,734,758) (1,425,746) 1,315,392
(Increase) decrease in other
assets - current (52,597) 48,901 (399,755)
(Decrease) increase in
accounts payable and accrued
liabilities (520,087) 389,570 (8,376,122)
Increase (decrease) in income
taxes payable 636,766 (465,823) 114,565
Decrease in other assets 160,171 2,579 67,267
Net cash provided by
operating activities 3,387,418 4,306,672 1,443,186
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
CONSOLIDATED STATEMENT OF CASH FLOWS (Contd.)
For the Years Ended December 31,
1995 1994 1993
Cash Flows From Investing
Activities
Investment in marketable
securities (5,280,031) (14,104,906) (19,847,705)
Proceeds from disposition of
marketable securities 5,280,031 13,950,000 15,378,597
Proceeds from sale of property,
plant and equipment 7,750 303,513 4,557,921
Capital expenditures (2,854,855) (1,654,453) (435,997)
Design and engineering for
processing plant (821,954) - -
Net cash (used in)
investing activities (3,669,059) (1,505,846) (347,184)
Cash Flows From Financing
Activities
Payments on long-term debt (17,197) (600,000) (975,432)
Proceeds from long-term debt 392,310 - -
Proceeds from capital leases - 113,924 197,690
Principal payments for capital
leases (103,885) (90,589) (10,083)
Dividends paid (2,579,658) (3,439,543) (3,439,543)
Net cash (used in)
financing activities (2,308,430) (4,016,208) (4,227,368)
Net (Decrease) In Cash And Cash
Equivalents (2,590,071) (1,215,382) (3,131,366)
Cash And Cash Equivalents At
20
Beginning Of Year 9,429,031 10,644,413 13,775,779
Cash And Cash Equivalents At End
Of Year $ 6,838,960 $ 9,429,031 $ 10,644,413
See Notes to Consolidated Financial Statements.
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
1993
Balance at January 1 $ 21,497,145 $ 31,120,041 $ - $ 52,617,186
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
1995
Net income - 3,332,931 - 3,332,931
Unrealized gain
on securities - - 97,923 97,923
Dividends ($.30 per
share) - (2,579,658) - (2,579,658)
Balance at
December 31 $ 21,497,145 $ 29,509,444 $ 16,398 $ 51,022,987
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 preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
21
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The Company considers all investments purchased with a maturity of three months
or less to be cash equivalents. On December 31, 1995 and 1994, the Company had
purchased $4,800,000 and $8,800,000, respectively, of U.S. Government securities
under agreements to resell on January 2, 1996 and January 3, 1995, 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." The Company determines the appropriate classification at
time of purchase. Securities are classified as held-to-maturity 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, which is based on quoted prices.
Unrealized gains and losses, net of tax, are 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. Cost of securities sold
is determined on a specific identification basis. 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 did not restate the financial
statements for prior years.
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 93% and 94% of inventories at current cost at December 31, 1995
and 1994, 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.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
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. As permitted by Statement No. 109, the
Company 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. 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.
22
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 1995 presentation.
2. Marketable Securities
At December 31, 1995 and 1994, the Company held investments in marketable
securities which it classified as either available-for-sale or held-to-maturity,
depending upon the security.
Securities classified as available-for-sale at December 31, 1995 and 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, 1995 and 1994 included the
following:
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
Amortized Fair
Cost Value
1995:
Marketable Securities - Current:
Northern Trust Advantage investment
portfolio consisting of government
securities, municipal bonds and
commercial paper $ 1,840,760 $ 1,840,760
Accrued interest 232,142 232,142
$ 2,072,902 2,072,902
Marketable Securities - Non-Current:
Northern Trust Advantage investment
portfolio consisting of government
securities and municipal bonds $ 3,601,329 3,627,992
Net Book Value - Available-
for-Sale Securities: $ 5,700,894
1994:
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:
23
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
Securities classified as held-to-maturity are stated at amortized cost and are
included in Other Non-Current Assets on the December 31, 1995 and 1994
Consolidated Balance Sheet. These held-to-maturity securities at December 31,
1995 and 1994 included the following:
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
Amortized Fair
Cost Value
1995:
U.S. Treasury Note, face value of
$5,000,000, interest at 5.125%,
due April 30, 1998 $ 4,981,001 $ 4,987,500
U.S. Treasury Note, face value of
$5,000,000, interest at 6.250%,
due January 31, 1997 5,000,000 $ 5,054,688
Net Book Value - Held-to-
Maturity Securities: $ 9,981,001
1994:
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
The calculation of gross unrealized gain (loss) for the years ended December 31,
1995 and 1994 is as follows:
Gross
Unrealized
Fair Value Cost Gain (Loss)
1995:
Available-for-sale
securities $ 5,468,752 $ 5,442,089 $ 26,663
Held-to-maturity securities:
U.S. Treasury Note, face
value of $5,000,000,
interest at 5.125%, due
24
April 30, 1998 4,987,500 4,981,001 6,499
U.S. Treasury Note, face
value of $5,000,000,
interest at 6.250%, due
January 31, 1997 5,054,688 5,000,000 54,688
Gross Unrealized Gain $ 87,850
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
Gross
Unrealized
Fair Value Cost Gain (Loss)
1994:
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 gains (losses) on held-to-maturity securities have not been
recognized in the accompanying consolidated financial statements. Net
unrealized gain on available-for-sale securities included in shareholders'
equity at December 31, 1995 was $16,398, consisting of gross unrealized gain of
$26,663 net of deferred income taxes. 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 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, 1995 or 1994.
3. Accrued Liabilities
Accrued liabilities at December 31, 1995 and 1994 include the following:
1995 1994
Payroll and related costs $ 2,552,041 $ 2,683,209
Taxes, other than income 243,223 266,960
Profit sharing 464,472 556,208
Insurance 3,476,589 3,862,646
Plant shutdown costs 599,073 992,078
Other 1,055,802 1,355,818
$ 8,391,200 $ 9,716,919
25
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 which
have a commercial value.
At December 31, 1995, the Company had established reserves of $3,857,000 for
environmental clean-up costs for discontinued operations. The Company, in
association with outside consultants, has developed a decommissioning plan for
the site involved, and has submitted that plan and a related decommissioning
funding plan to the Nuclear Regulatory Commission ("NRC") as required by law.
Prior to decommissioning, the Company proposes to construct and operate for
approximately eight to ten years a commercial plant to complete the processing
of residues currently contained in storage ponds at the site, which would
materially reduce the amount of radioactive materials to be disposed of during
decommissioning. In conjunction with construction of the processing plant, the
Company would modify the wastewater treatment plant at the site and install a
drainage system. Decommissioning would be comprised of construction of an
engineered on-site cell for containment of contaminated soils; consolidation and
stabilization of the contaminated soils in the containment cell; and the
performance of required plant surveys and characterizations after residue
processing ceases to determine whether additional contaminated soils exist which
may require remediation.
The Company has applied for an amendment to its current NRC license and for a
revision to its current wastewater discharge permit to allow construction and
operation of the proposed processing plant, and believes that these regulatory
authorizations will be issued in the near future. Preliminary engineering,
design and feasibility studies have been completed for the proposed processing
plant, which would extract commercially valuable materials such as tantalum,
columbium, scandium and other rare earth and rare metal elements from the
feedstock residues. The Company has engaged a process design expert to confirm
the viability of the proposed plant. The estimated cost of construction is
approximately $10 million. The estimated value of materials to be extracted is
based on analysis of samples taken from the residues and a valuation 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
residue processing were developed by Company personnel and independent
consultants using third party evaluations based on the pilot testing performed.
Residue processing is expected to start approximately a year after licensing
approval is received. The provisions for discontinued operations reflect
management's belief that the current value of the extracted materials will at
least equal the estimated cost of construction and costs of processing,
including estimated costs for disposal of waste generated by the process. The
annual recovery revenues are estimated to be in a range of
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
$2,000,000 to $3,000,000. However, there can be no assurance as to the level of
26
demand for certain of the extracted materials or the actual prices which may be
obtained for them, which could vary over time.
In October 1995 the NRC advised the Company that a decommissioning funding plan
cost estimate based on on-site disposal of most of the radioactive wastes at the
site is appropriate to consider at this time. The NRC cautioned the Company,
however, that on-site disposal may require preparation of an Environmental
Impact Statement and that, in addition to the required NRC approval, local and
other federal agencies may have to be satisfied that the Company's disposal plan
is sound. Such approval process can be expected to extend over a number of
years. Management believes that a decommissioning plan including on-site
containment will ultimately be acceptable to the appropriate regulatory
authorities, based on current and proposed NRC regulations and a provision of
the Nuclear Waste Policy Act of 1982 requiring the Department of Energy to take
title to certain "special sites" which may include the Company's site; however,
there is no assurance that a plan providing for on-site containment will
ultimately be approved. Implementation of a decommissioning plan for the
Company's site which includes off-site disposal may not be financially feasible.
The NRC's decommissioning regulations require licensees to estimate the cost for
decommissioning and to assure in advance that adequate funds will be available
to cover those costs. NRC regulations identify a number of acceptable methods
for assuring funds for decommissioning, including surety instruments such as
letters of credit, cash deposits and combinations thereof. The NRC's October
letter requested the Company to submit a decommissioning funding plan
contemplating on-site containment and stated that the cost of residue processing
should be included in the Company's cost estimate. The Company is currently
developing such a plan. The initial level of assurance for decommissioning and
construction is estimated to be at least $15 million. The estimate assumes that
the Company will not be required to assure the operating costs of residue
processing. The Company's available cash and/or borrowing capacity will be
reduced by the amount of funding assurance as required at any particular time.
As the decommissioning plan is implemented, deposited funds or the amount of any
surety instruments may be reduced, provided the Company can demonstrate the
sufficiency of the remaining funds or surety to assure the completion of
decommissioning.
Expenditures for environmental reclamation and decommissioning were $1,221,000,
$1,061,000 and $1,986,000 in 1995, 1994, and 1993, respectively. Costs of
$357,000 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 proposed
decommissioning plan, taking into consideration the most current information,
existing technology and regulations in effect, management believes that the
amounts reserved at December 31, 1995 are adequate to cover the costs of
environmental clean-up for discontinued operations and that the Company has the
ability to meet the NRC's decommissioning funding assurance requirements.
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 charged 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, 1995 and 1994 include
the following (in thousands of dollars):
27
1995 1994
Land $ 110 $ 110
Building 5,218 5,218
5,328 5,328
Less accumulated depreciation 4,805 4,805
Net land and buildings 523 523
Design and engineering costs
for processing plant 822 -
$ 1,345 $ 523
The remaining land and buildings of the Company's former Precision Sheet Metal
(PSM) operation within the Metal Fabrications business segment 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 located on-site. 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
$591,000 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.
5. Debt
Debt at December 31, 1995 consisted of amounts obtained from various Iowa
development programs due through the year 2000. Amounts due are $81,000 in
1996, 1997, 1998 and 1999, and $60,000 in 2000.
Interest paid on debt for the years ended December 31, 1995, 1994 and 1993
amounted to $4,000, $13,000 and $46,000, respectively.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
6. Income Taxes
Deferred income taxes reflect the 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, 1995 and 1994 are as
follows:
1995 1994
Deferred tax assets - current:
Plant shutdown, idle facilities and
environmental costs $ 103,482 $ 256,078
Self insurance accruals 825,569 860,201
Vacation accruals 339,829 314,368
28
State income taxes 238,216 321,615
Other (54,937) 229,487
$ 1,452,160 $ 1,981,749
Deferred tax assets (liabilities) -
noncurrent:
State income tax net operating loss
carryforwards net of valuation
allowance $ 549,350 $ 427,378
State income taxes (322,033) (251,902)
$ 227,317 $ 175,476
Deferred tax (assets) liabilities -
noncurrent:
Pension credits $ 2,426,922 $ 2,504,006
Plant shutdown, idle facilities and
environmental costs (1,055,712) (1,459,287)
Other 3,701 (79,640)
$ 1,374,911 $ 965,079
At December 31, 1995 and 1994, the Company had state income tax benefits of
$1,085,000 and $1,023,000, respectively, from net operating loss carryforwards
that expire in various years through 2008. For financial reporting purposes,
valuation allowances of $536,000 and $596,000 at December 31, 1995 and 1994,
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:
1995 1994 1993
Current taxes
Federal $ 935,000 $ 900,000 $ 574,000
State and other 379,000 331,000 450,000
1,314,000 1,231,000 1,024,000
Deferred income tax
charge (credit)
Federal 829,000 950,000 (378,000)
State 38,000 156,000 ( 95,000)
867,000 1,106,000 (473,000)
Total 2,181,000 2,337,000 551,000
Allocated to
discontinued operations - - (1,041,000)
Cumulative effect to
January 1, 1993 of
change in accounting
for income taxes - - (66,000)
Continuing operations $ 2,181,000 $ 2,337,000 $ 1,658,000
29
The deferred income tax charge in 1995 results primarily from payments for
certain plant shutdown, idle facilities and environmental costs accrued in prior
years.
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.
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:
1995 1994 1993
Income tax provision at
statutory rate $ 1,875,000 $ 2,022,000 $ 495,000
Add (deduct):
State income taxes, net of
federal income tax provision 275,000 321,000 109,000
Cumulative effect to
January 1, 1993 of change in
accounting for income taxes - - (66,000)
Other, net 31,000 (6,000) 13,000
Total income tax provision $ 2,181,000 $ 2,337,000 $ 551,000
Income taxes paid for each of the three years in the period ended December 31,
1995 amounted to $1,147,000, $1,610,000 and $1,131,000, respectively. Income
tax refunds received during the three years in the period ended December 31,
1995 amounted to $427,000, $319,000 and $831,000, respectively.
7. Retirement Plans
The Company has several non-contributory defined benefit plans covering
approximately 31% 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.
Contributions to defined benefit plans totalled $63,113 and $108,435 in 1995 and
1994, respectively. There were no payments in 1993.
The net pension (credits) in 1995, 1994 and 1993 are comprised of:
1995 1994 1993
Service cost $ 368,000 $ 376,000 $ 388,000
Interest cost on projected
benefit obligations 3,181,000 3,003,000 3,005,000
Actual return on Plan assets (6,021,000) 823,000 (3,638,000)
Net amortization and
deferral 2,660,000 (4,355,000) (59,000)
30
Net pension expense (credit) $ 188,000 $ (153,000) $ (304,000)
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
The plans' funded status and amounts recognized in the balance sheet at December
31 is as follows:
1995 1994
Actuarial present value of benefit
obligations
Vested $ 40,274,444 $ 36,397,643
Non-vested 538,534 587,679
Total accumulated benefit obligations $ 40,812,978 $ 36,985,322
Projected benefit obligations for services
rendered to date $ 43,253,191 $ 38,675,554
Plan assets at fair value, primarily U.S.
Government securities and publicly traded
stocks and bonds 41,902,910 39,315,399
Plan assets in excess of projected
benefit obligations (1,350,281) 639,845
Effect of change in assumptions,
net gains and losses 11,127,442 10,050,722
Unrecognized net excess plan assets
at January 1, 1986 being recognized
over approximately 15 years (2,067,353) (2,747,826)
Prepaid pension asset $ 7,709,808 $ 7,942,741
The assumptions used in determining the actuarial present value of projected
benefit obligations were as follows:
1995 1994 1993
Discount rate 7.5% 8.5% 7.5%
Rate of increase in future
compensation levels 5.0% 5.5% 5.5%
Expected long-term rate
of return on assets 8.0% 8.0% 8.0%
The Company has several defined contribution plans covering approximately 84% of
its employees. Almost all of 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. Almost all of the defined contribution plans also allow for
additional discretionary Company contributions based upon profitability. The
costs of these plans included in continuing operations for 1995, 1994 and 1993
were $869,000, $839,000 and $714,000, 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. The Company
accrues the cost of the retiree life insurance benefits in relation to the
employee's service with the Company. Cost of postretirement benefits other than
pensions for the years ended December 31, 1995, 1994 and 1993 were $37,000,
31
$44,000 and $86,000, respectively.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
8. 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.
Financial information concerning the Company's segments for the years ended
December 31, 1995, 1994 and 1993 is as follows:
1995 1994 1993
NET SALES:
INDUSTRIAL TOOLS -
Sales $ 50,068,802 $ 43,558,081 $ 38,607,023
Intersegment sales (95) - (2,934)
50,068,707 43,558,081 38,604,089
METAL FABRICATIONS -
Sales 52,551,291 45,783,951 50,796,887
Intersegment sales (22,244) (54,696) (13,490)
52,529,047 45,729,255 50,783,397
$102,597,754 $ 89,287,336 $ 89,387,486
OPERATING INCOME (LOSS):
INDUSTRIAL TOOLS $ 3,109,433 $ 2,856,607 $ 1,998,794
METAL FABRICATIONS 1,370,067 1,809,048 576,534
CORPORATE (44,352) (13,250) (17,198)
$ 4,435,148 $ 4,652,405 $ 2,558,130
Intersegment sales are accounted for at prices equivalent to the competitive
market prices for similar products.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
32
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 year
ended December 31, 1993 were $1,016,000. Gain of $29,000 from disposal of PSM
property and plant in 1995 was deferred to cover anticipated plant shutdown
costs. 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
$1,201,000 for property and plant which are carried in Other Non-Current Assets
at December 31, 1995. Depreciation on the plant was $119,000 for the year ended
December 31, 1993.
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 1995 1994 1993
Tungsten carbide
cutting tools Industrial Tools 31% 29% 25%
Nonferrous forgings Metal Fabrications 11% 12% 8%
Investment castings Metal Fabrications 12% 13% 7%
The identifiable assets, depreciation and capital expenditures for the years
ended December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993
Identifiable assets
Industrial Tools $15,895,229 $14,007,160 $12,212,684
Metal Fabrications 23,553,746 22,089,022 23,235,416
Corporate/Discontinued 35,080,878 36,784,736 37,843,234
Total assets $74,529,853 $72,880,918 $73,291,334
Depreciation
Industrial Tools $ 778,260 $ 716,800 $ 692,728
Metal Fabrications 1,220,297 1,258,238 1,505,457
Corporate/Discontinued - - -
Total depreciation $ 1,998,557 $ 1,975,038 $ 2,198,185
Capital expenditures
Industrial Tools $ 1,062,578 $ 1,055,600 $ 109,310
Metal Fabrications 1,792,277 598,853 326,687
Corporate/Discontinued - - -
Total capital expenditures $ 2,854,855 $ 1,654,453 $ 435,997
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Contd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
9. Lease Commitments
The Company leases data processing, transportation and other equipment, as well
as certain facilities, under operating leases. Such leases do not involve
33
contingent rentals, nor do they contain significant renewals or escalation
clauses.
Total minimum future rentals under noncancelable leases at December 31, 1995
were $1,550,000, including $489,000 in 1996, $461,000 in 1997, $412,000 in 1998,
$184,000 in 1999, and $4,000 in 2000 and thereafter. Rental expense of the
continuing operations was $1,094,000 in 1995, $1,187,000 in 1994, and $2,024,000
in 1993.
Property, plant and equipment included $312,000 in machinery and equipment from
capital leases at December 31, 1995 and 1994. Future minimum payments including
interest are $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,
1995
Net sales $ 25,649 $ 25,732 $ 25,631 $ 25,586
Gross profit 4,895 4,286 4,328 4,137
Net income 1,076 720 836 701
Net income per common share .13 .08 .10 .08
1994
Net sales $ 21,813 $ 22,053 $ 22,319 $ 23,102
Gross profit 4,288 4,413 4,121 4,432
Net income 853 844 1,012 900
Net income per common share .10 .10 .12 .10
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.
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 10.
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 24, 1996.
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 24, 1996.
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
34
"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 24, 1996.
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
shareholders to be held on April 24, 1996.
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. 21
Consolidated Statement of Operations for each
of the three years in the period ended
December 31, 1995. 22
Consolidated Balance Sheet at December 31,
1995 and 1994. 23-24
Consolidated Statement of Cash Flows for each
of the three years in the period ended
December 31, 1995. 25-26
Consolidated Statement of Shareholders'
Equity for each of the three years in the
period ended December 31, 1995. 27
Notes to Consolidated Financial Statements. 28-42
Summary Quarterly Financial Data for the
years ended December 31, 1995 and 1994. 42
(a)(2) Index to Consolidated Financial Statement Schedule:
Consolidated Financial Statement Schedule
for each of the three years ended
December 31, 1995:
II. Valuation and qualifying accounts 45
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
35
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, 1995.
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 12/31/95 $ 276,440 $ 16,022 $ 16,022 $ 276,440
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
(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 13, 1996 By: \s\ William D. Jarosz
William D. Jarosz, President 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; President and
\s\ William D. Jarosz Chief Executive Officer March 13, 1996
William D. Jarosz
Vice President and Chief
\s\ R. Michael McEntee Financial Officer March 13, 1996
R. Michael McEntee
\s\ Betty B. Evans Director March 13, 1996
Betty B. Evans
\s\ R. S. Evans Director March 13, 1996
36
Robert S. Evans
\s\ Thomas M. Evans, Jr. Director March 13, 1996
Thomas M. Evans, Jr.
\s\ Jack S. Petrik Director March 13, 1996
Jack S. Petrik
\s\ C. J. Queenan, Jr. Director March 13, 1996
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
37
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
Phoenix Aerospace Corp. Delaware
(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, 1995 and the
related consolidated statement of operations for the year ended December 31,
1995 and is qualified in its entirety by reference to the Company's Form 10K
filing for 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,838,960
<SECURITIES> 2,072,902
<RECEIVABLES> 14,582,069
<ALLOWANCES> 276,440
<INVENTORY> 14,515,307
<CURRENT-ASSETS> 40,187,034
<PP&E> 55,753,814
<DEPRECIATION> 45,533,604
<TOTAL-ASSETS> 74,529,853
<CURRENT-LIABILITIES> 18,325,411
<BONDS> 297,906
<COMMON> 21,497,145
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<OTHER-SE> 29,525,842
<TOTAL-LIABILITY-AND-EQUITY> 74,529,853
<SALES> 102,597,754
<TOTAL-REVENUES> 102,597,754
<CGS> 84,951,756
<TOTAL-COSTS> 98,162,606
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<INTEREST-EXPENSE> 15,577
<INCOME-PRETAX> 5,513,931
<INCOME-TAX> 2,181,000
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<NET-INCOME> 3,332,931
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