<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 3, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----------- -----------
COMMISSION FILE NUMBER 1-5601
AMERICAN PRECISION INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 16-1284388
(State of incorporation) (I.R.S. Employer Identification No.)
2777 WALDEN AVENUE, BUFFALO, NEW YORK 14225
(Address of principal executive offices) (Zip Code)
(716) 684-9700
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $.66-2/3 PAR VALUE NEW YORK STOCK EXCHANGE
(Title of each class) (Name of each exchange on which registered)
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, at March 21, 1997 was approximately $108,000,000.
The number of shares of Registrant's Common Stock outstanding on March
21, 1997 was 7,322,535.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Exhibit Index can be found on page 46 of this document.
1
<PAGE> 2
AMERICAN PRECISION INDUSTRIES INC.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED JANUARY 3, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I.
- ------
ITEM 1. BUSINESS
<S> <C> <C>
Products and Marketing 3
Competition 6
Backlog 6
Suppliers 6
Patents and Licenses 7
Customers 7
Research and Development 7
Environmental Matters 7
Employees 7
Lines of Business and Industry Segment Information 7-8
Foreign Operations 8
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 10
SECURITY HOLDERS
PART II.
- --------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 11
ITEM 6. SELECTED FINANCIAL DATA 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13-16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 38
PART III.
- ---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 39
ITEM 11. EXECUTIVE COMPENSATION 39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 39
PART IV.
- --------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 40-43
SIGNATURES 44-45
</TABLE>
2
<PAGE> 3
PART I
------
ITEM 1. BUSINESS
--------
a. PRODUCTS AND MARKETING
The registrant through its subsidiaries (the "Company" or "API")
conducts operations in three major industrial classifications,
namely, Heat Transfer Technology, Motion Technologies, and
Electronic Components.
The Company continues to direct its efforts towards major sales
drives for current products in its served markets and target
markets. In addition, the Company continues to seek profitable
growth by enhancing and complementing its existing technology
base.
API HEAT TRANSFER INC.
----------------------
API Heat Transfer Inc., which is comprised of API BASCO, API
AIRTECH, API KETEMA, and most recently API SCHMIDT-BRETTEN,
engineers and manufactures a broad range of industrial heat
transfer equipment. API Heat Transfer serves the heat transfer
needs of a wide range of industries including power, chemical,
petrochemical, HVAC, and food and dairy, and many of their
support industries. Products range from small standard units to
large custom-designed heat exchangers.
API BASCO INC. manufactures a full line of standard and custom
shell and tube heat exchangers, plate fin intercoolers and
aftercoolers, and Centraflow steam surface condensers.
API AIRTECH INC. manufactures a complete line of aluminum air to
air, air to liquid, and liquid to liquid heat exchangers. The
liquid to liquid heat exchanger provides the refrigeration
market with a more advantageous evaporation and condenser
combination through reduced piping, smaller footprint, and more
efficient heat transfer surface. In December 1996, API Airtech
moved into a new 82,000 square foot facility which will
accommodate current and planned growth.
Both API Basco and API Airtech achieved ISO 9001 certification
during 1996, an important factor in the Company's plans for
international growth.
API KETEMA INC., which was acquired on April 1, 1996, has a
strong position in both the general industrial and refrigeration
heat transfer marketplace. This subsidiary manufactures shell
and tube heat exchangers, chiller barrels, condensers, flooded
evaporators and industrial packaged chillers.
API SCHMIDT-BRETTEN GMBH, which was acquired on January 31,
1997, is a plate and frame heat exchanger manufacturer with a
solid position in the chemical and food markets in Germany and
the Netherlands. The addition of API Schmidt-
3
<PAGE> 4
Bretten, which is located in Germany, not only adds a new
dimension to the group's heat transfer capabilities, but also
establishes a conduit to move plate products into the U.S.
market and, at the same time, move heat transfer products
manufactured at various domestic locations into European
markets.
API MOTION INC.
---------------
API Motion Inc., comprised of API CONTROLS, API DELTRAN, API
GETTYS and API HAROWE, is a designer and manufacturer of high
performance motion control products and systems.
API CONTROLS INC. offers complete lines of step and servo drives
and packaged drive systems for a wide variety of motion control
applications including factory automation, semiconductor
equipment, printing, packaging, and winding equipment,
positioning tables and electronics assembly applications. In
1996, API Controls developed and introduced three major new
product lines and a new software development tool to assist
customers in the installation of products so there is little or
no start-up learning curve. The completely new Intelligent
MicroStepper and Intelligent Servo drives and controllers and
new line of Centennial all-digital drives, address the needs of
original equipment manufacturers that require high-performance
single- or multi-axis solutions.
API DELTRAN INC. designs and manufactures high quality,
precision electromagnetic clutches, brakes and clutch/brake
assemblies used in sophisticated rotary motion control
applications. During 1996, API Deltran developed a new line of
servo motor brakes primarily to meet the needs of servo motor
manufacturers and for use in factory automation applications.
Furthermore, an adjunct to the API Harowe manufacturing facility
in St. Kitts was started for API Deltran, providing the ability
to produce volume clutches at competitive prices.
API GETTYS INC. designs and manufactures precision servo and
step motors for a broad range of industrial drive applications
including DC brush and AC brushless servo motors and
NEMA-standard step motors with linear actuating assemblies. API
Gettys developed and introduced a new line of Turbo Stepper
motors in 1996, offering a variety of sizes of high torque
motors for use in semiconductor, factory automation, packaging
and medical instrumentation markets. A new line of high torque
Turbo Servo motors was also introduced for semiconductor,
machine tool, factory automation, medical instrumentation, and
packaging markets. During 1996 the electronics portion of API
Gettys was consolidated within the API Controls operation,
enabling API Gettys, as a motors-only facility, to focus better
on its core products.
API HAROWE INC. designs and manufactures high performance
resolvers, encoders, brushless motors, gearmotors and other
specialty rotating electromagnetic components for industrial,
medical, military and commercial aerospace applications. In
1996, API Harowe developed a new line of small frame brushless
DC motors that can be provided in over 4,500 different model
variations.
4
<PAGE> 5
The new line enables API to respond quickly to the needs of a
wide variety of markets such as medical instrumentation. The
digital resolver electronics package was also introduced in
1996. It was developed for applications that require the
ruggedness of a resolver with a digital output signal.
API ELECTRONIC COMPONENTS INC.
------------------------------
API Electronic Components Inc., which is comprised of API
DELEVAN INC. and API SMD INC., designs, manufactures and markets
an extensive line of quality inductors, chokes, and magnetics to
satisfy various electrical and electronic filtering
requirements. This group concentrates on producing high
performance inductive devices to meet stringent government and
customer specifications relating to product quality, reliability
and dependability.
Global competitive forces continue to push the market towards
improved product quality with lower product costs. This
competition from off-shore manufacturing is being neutralized
through major improvements in the group's manufacturing
capabilities.
Productivity throughout the workplace also continues to improve
through the success of Total Quality Management practices and
the High Performance Work Team approach. With an open team
culture, the group is able to be flexible and responsive to both
the market place and specific customer needs. In 1996, API
Delevan and API SMD completed automation and process improvement
projects that enabled them to produce quality products at a
lower cost than in any previous year.
During the year, both subsidiaries introduced additional new
products and expanded existing product designs to enhance
further their presence in both the high frequency and the power
markets, including various leaded and surface mountable
magnetics that have been developed to grow product offerings in
the broad power market. By expanding product offerings with
competitively priced inductors, the group is able to serve
existing customer needs better while attracting new customers.
Along with cost reduction initiatives and new product
introductions, both API Delevan and API SMD implemented a new
MRP computer-based business system. The conversion from the
prior system took a concentrated team effort of nine months, but
the results of this effort are already apparent. Forward looking
capacity planning and material management save valuable time so
that the subsidiaries can provide for their customers improved
on-time delivery performance.
5
<PAGE> 6
b. COMPETITION
-----------
In each of its segments the Company faces substantial
competition from a number of companies, some of which have
off-shore manufacturing facilities, and many of which are larger
and have greater resources. In the electronic components market,
several of the Company's domestic competitors have become part
of a single organization through a series of acquisitions. The
inductor market continues to be faced with strong global
competition and trends towards product miniaturization and lower
costs. The Company relies primarily on the quality of its
products and service to meet competition. Although the Company
is not aware of definitive industry statistics by manufacturer
for the products it makes, in the opinion of management, the
Company is a significant competitive factor in the markets for
high quality electronic-magnetic motion control components,
industrial heat exchangers and micro-miniature electronic coils.
c. BACKLOG
-------
The Company's backlog of unfilled orders believed to be firm at
January 3, 1997 was approximately $39,216,000. All backlog
orders are expected to be completed in the current fiscal year.
The following table shows the backlog of orders for products
associated with the three business segments:
<TABLE>
<CAPTION>
Heat Motion Electronic
Transfer Technologies Components Total
-------- ------------ ---------- -----
<S> <C> <C> <C> <C> <C>
1996 $20,639,000 $15,924,000 $2,653,000 $39,216,000
1995 $13,778,000 $14,229,000 $2,434,000 $30,441,000
</TABLE>
Backlogs have increased for the Heat Transfer and Motion
Technologies segments primarily due to a focused strategic
account sales program and the general business climate, combined
with the acquisition of API Ketema and API Gettys. While the
Electronic Components segment sales have increased, the backlog
has remained steady and is the result of reduced lead times for
delivery required by customers.
d. SUPPLIERS
---------
The Company is not dependent upon any single supplier for any of
the raw materials used in manufacturing its products and has not
encountered significant difficulties in purchasing sufficient
quantities of raw materials on the open market.
6
<PAGE> 7
e. PATENTS AND LICENSES
--------------------
The Company has patents covering the design and certain
manufacturing processes for some of its surface mounted
inductors which management believes may be material to the
Electronic Components segment over the next several years. These
patents have a remaining duration in excess of ten years.
Otherwise, no single patent or group of patents is material to
the operations of any industry segment or to the business as a
whole.
f. CUSTOMERS
---------
During 1996, no single customer accounted for more than 10% of
consolidated sales.
g. RESEARCH AND PRODUCT DEVELOPMENT
--------------------------------
The Company charges earnings directly for research and product
development expenses. Costs for Company-sponsored programs,
excluding capital expenditures, were approximately $1,759,000,
$1,111,000, and $888,000 in 1996, 1995, and 1994, respectively.
h. ENVIRONMENTAL MATTERS
---------------------
In 1990, the U.S. Environmental Protection Agency (EPA) named
the Company a potentially responsible party (PRP) with respect
to hazardous substances disposed of at the Envirotek II Site
(the Site) in Tonawanda, New York. The Company is a member of a
steering committee which was formed to facilitate discussions
with the EPA. The Company was named a de minimis participant
with respect to the first phase of the clean-up action and was
relieved of any potential liability for the first phase clean-up
with the payment of a minor fee. The EPA has since advised the
Company that its name had been removed from the PRP list. The
State of New York has also indicated to the Envirotek II PRP
Group its intention to pursue additional remedial measures at a
site which surrounds the Site. Based upon the small percentage
of costs incurred to date which were allocated to the Company,
management expects the Company's share of the total costs of the
remedial phase action at the Site and the potential clean-up of
the surrounding area to be a small percentage of such costs and
not material to its financial statements.
i. EMPLOYEES
---------
At January 3, 1997, 1,309 persons were employed by the Company.
j. LINES OF BUSINESS AND INDUSTRY SEGMENT INFORMATION
--------------------------------------------------
The Company's operations in 1996 were carried on through seven
divisions and five subsidiaries. On January 3, 1997, the seven
divisions were legally
7
<PAGE> 8
restructured into operating subsidiaries. Operations are
classified into three industry segments based upon the
characteristics of manufacturing processes and the nature of
markets served. The operating units which currently comprise the
segments and their principal products are as follows:
Segment
-------
<TABLE>
<CAPTION>
API Heat Transfer:
------------------
<S> <C> <C>
API Airtech Air-to-air aluminum heat exchangers
API Basco Shell and tube heat exchangers
API Ketema Packaged chillers, refrigeration condensers, and
shell and tube heat exchangers
API Schmidt-Bretten Plate heat exchangers
API Motion:
-----------
API Controls Servo and stepper motor drives, power supplies,
and motion controllers
API Deltran Electro-magnetic clutches and brakes
API Deltran (St. Kitts) Electro-magnetic clutches and brakes
API Gettys AC and DC servo motors and stepper motors
API Harowe Resolvers and DC Motors
API Harowe (St. Kitts) Resolvers and DC Motors
API Electronic Components:
--------------------------
API Delevan Axial-leaded inductors
API SMD Surface mounted inductors
</TABLE>
Amounts of revenue from sales to unaffiliated customers,
operating profit or loss, and identifiable assets for the three
years ended January 3, 1997, are included in Note N of the notes
to consolidated financial statements.
k. FOREIGN OPERATIONS
------------------
Export sales, principally to Europe, Canada, Mexico, and Asia,
were approximately 15%, 14%, and 17% of consolidated sales for
1996, 1995, and 1994, respectively. The foreign sales are not
believed to be subject to any risks other than those normally
associated with the conduct of business in friendly nations
having stable governments.
8
<PAGE> 9
ITEM 2. PROPERTIES
----------
The location of the Company's facilities and their approximate size in
terms of floor area are as follows:
<TABLE>
<CAPTION>
Floor Area
Location (Sq. Ft.)
---------------------------------------------------- -----------------
API HEAT TRANSFER
<S> <C>
API Basco Inc.
Buffalo 115,600
New York
(Walden Avenue)
API Airtech Inc.
Arcade 82,000
New York
(North Street)
API Ketema Inc.
Grand Prairie 150,000
Texas
(West Marshall Drive)
API MOTION
API Harowe Inc.
West Chester 34,500
Pennsylvania
(Westtown Road)
API Controls Inc. and API Deltran Inc.
Amherst 43,652
New York
(Hazelwood Drive)
API Gettys Inc.
Racine 88,000
Wisconsin
(North Green Bay Road)
API Harowe (St. Kitts) Ltd. and
API Deltran (St. Kitts) Ltd.
St. Kitts 8,500
West Indies
(Bourkes Road)
API ELECTRONIC COMPONENTS
API Delevan Inc.
East Aurora 50,000
New York
(Quaker Road)
API SMD Inc.
Arcade 23,500
New York
(North Street)
</TABLE>
9
<PAGE> 10
The Walden Avenue (API Basco Inc.), Quaker Road (API Delevan Inc.),
North Street (API Airtech Inc. and API SMD Inc.), West Marshall Drive
(API Ketema Inc.) and North Green Bay Road (API Gettys Inc.)
facilities are owned by the Company.
The facilities leased by the Company are as follows:
<TABLE>
<CAPTION>
Approx.
Annual Leased
Facility Location Rental Until
-----------------------------------------------------------------------
<S> <C> <C>
Bourkes Road (API Harowe (St. Kitts) Ltd.
and API Deltran (St. Kitts) Ltd.) $ 24,000 2003
Hazelwood Drive (API Controls Inc. and $130,000 2002
API Deltran Inc.)
Westtown Road (API Harowe Inc.) $168,000 2001
</TABLE>
The Company believes all of its existing properties are well
maintained, are suitable for the operation of its business, and are
capable of handling production for the coming year.
ITEM 3. LEGAL PROCEEDINGS
-----------------
See Item 1(h).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted to a vote of security holders during
the fourth quarter of 1996.
10
<PAGE> 11
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
-------------------------------------
AND RELATED STOCKHOLDER MATTERS
-------------------------------
COMMON STOCK PRICES
American Precision Industries Inc. common stock is listed on the New
York Stock Exchange under the symbol APR and is traded principally in
that market. The following table shows the Company's high and low
prices on the New York Stock Exchange, as reported in the Wall Street
Journal.
<TABLE>
<CAPTION>
QUARTER
1 2 3 4
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 High $ 13.13 $13.75 $13.13 $20.25
Low $ 10.75 $11.50 $11.38 $12.25
1995 High $ 9.63 $11.13 $14.75 $13.88
Low $ 7.63 $ 8.50 $10.13 $10.75
</TABLE>
As of January 3, 1997, there were 1,015 shareholders of record. During
1995 and 1996 the Company declared cash dividends on its common stock
of $.2575 and $.26 per share, respectively. The Company has decided to
eliminate its quarterly cash dividend, effective in the first quarter
of 1997, and to retain the cash for corporate expansion and
acquisitions.
11
<PAGE> 12
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
FIVE YEAR SELECTED FINANCIAL DATA
OPERATIONS 1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $117,110,000 $82,660,000 $65,265,000 $51,334,000 $51,295,000
Interest and debt expense $ 1,295,000 $ 238,000 $ 220,000 $ 244,000 $ 293,000
Depreciation and
amortization $ 3,785,000 $ 2,594,000 $ 2,275,000 $ 1,712,000 $ 1,531,000
Net earnings $ 6,525,000 $ 4,731,000 $ 3,431,000 $ 2,050,000 $ 2,387,000
Net earnings per common share $.91 $.67 $.49 $.29 $.34
Net earnings per common
share - fully diluted* $.86 $.65 -- -- --
Cash dividends declared
per share $.26 $.2575 $.2475 $.235 $.215
FINANCIAL
CONDITION
--------------------------------------------------------------------------------------------------------------
Current assets $ 40,986,000 $31,615,000 $25,113,000 $21,347,000 $20,447,000
Current liabilities $ 16,794,000 $13,152,000 $10,916,000 $ 5,362,000 $ 4,896,000
Working capital $ 24,192,000 $18,463,000 $14,197,000 $15,985,000 $15,551,000
Current ratio 2.4 2.4 2.3 4.0 4.2
Property, plant and
equipment, net $ 27,206,000 $12,269,000 $10,202,000 $ 8,353,000 $ 8,200,000
Total assets $ 82,012,000 $57,791,000 $45,344,000 $38,081,000 $37,369,000
Long-term liabilities $ 24,674,000 $10,292,000 $ 3,523,000 $ 3,507,000 $ 3,761,000
Shareholders' equity $ 40,544,000 $34,347,000 $30,905,000 $29,212,000 $28,712,000
Shareholders' equity
per share $5.56 $4.82 $4.38 $4.14 $4.07
Number of shares
outstanding at year-end 7,292,000 7,128,000 7,064,000 7,058,000 7,055,000
* Anti-dilutive in 1994, 1993, and 1992
</TABLE>
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FINANCIAL REVIEW - OPERATIONS
REVENUES. Consolidated revenues increased 41.7% as compared to
the prior year. Sales within the Heat Transfer segment increased
55.7% in 1996 and reflect higher sales of the extended surface
heat transfer equipment which continues to surpass 1995 levels,
as well as increased sales volume of the air cooled product line
to new and existing customers. The 1996 results of the Heat
Transfer segment were also impacted favorably by sales of
approximately $16.4 million from API Ketema, which was acquired
by the Company on April 1, 1996. The Electronic Components
segment sales increased 1.9% in 1996 as compared to 1995; the
increase was primarily the result of a slight increase in sales
volume to existing customers. The increase of 39.9% in sales of
the Motion Technologies segment was the result of higher sales
of electromagnetic clutches and brakes and motion control
devices to new and existing customers, combined with an increase
in the market share of products offered by Harowe Servo Controls
Inc. The 1996 results of the Motion Technologies segment were
also favorably impacted by sales of approximately $7.3 million
from API Gettys, which was acquired by the Company on April 19,
1996.
In 1995, consolidated revenues increased 26.7% as compared to
1994. Sales within the Heat Transfer segment increased 22.6% in
1995; the increase is attributable to increased sales of
traditional water cooled heat exchangers to existing customers,
as well as significant growth in the air cooled heat exchanger
product line. The Electronic Components segment sales increased
8.7% due to a higher sales volume in a specific axial-leaded
product, offset by completion of a major sales order to one
customer in 1994 which did not recur in 1995. The increase of
45.4% in sales of the Motion Technologies segment was the result
of the acquisition of Harowe Servo Controls Inc. in June 1994,
as well as a slightly higher sales volume of previously existing
motion control products.
The Company's consolidated backlog of firm orders at January 3,
1997 was $39,216,000, up 28.8% from the prior year. This
reflects a 49.8% increase in the Heat Transfer segment, a 9.0%
increase in the Electronic Components segment, and a 11.9%
increase in the Motion Technologies segment. A focused strategic
account sales program, the favorable general business climate,
and the acquisition of API Ketema and API Gettys all contributed
to the increase.
Investment income increased $70,000, or 27.2% in 1996 as
compared to 1995. This increase was attributable primarily to
investment income earned on the undisbursed proceeds from the
Air Technologies Industrial Revenue Bond financing, which was
concluded in December 1995.
Investment income declined $112,000, or 30.4% in 1995 as
compared to 1994. The decline reflects lower average investment
asset balances resulting from the
13
<PAGE> 14
sale of various bonds to fund both current operations and the
purchase of Harowe in June 1994 combined with lower average
interest rates.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased $7,609,000, or 40.5% in 1996 as compared to
1995. The majority of the increase was due to: 1) the inclusion
of API Ketema and API Gettys administrative expenses since the
dates of acquisition; 2) increased commission expenses as a
result of the increased sales revenue; 3) increased provision for
bonus under the Company's incentive plans; and 4) compensation
expense recorded in connection with stock appreciation rights
granted to the Chief Executive Officer in 1992.
Selling and administrative expenses increased $3,219,000, or
20.7% in 1995 as compared to 1994 primarily as the result of : 1)
increased commission expense due to increases in sales revenue;
2) the inclusion of Harowe's selling and administrative expenses
for the full year in 1995 and only six months in 1994; and 3)
higher bonus provision under the Company's incentive plans.
In spite of these increases, selling and administrative expenses
continue to decline when expressed as a percent of net sales.
RESEARCH AND PRODUCT DEVELOPMENT. Research and product
development expenses increased $648,000, or 58.3% in 1996 as
compared to 1995 and $223,000, or 25.1% in 1995 as compared to
1994. The increase in 1996 over 1995 for research and product
development costs reflects the acquisition of API Gettys, as well
as increased activities in the Motion Technologies segment
relative to future new product offerings. The acquisition of
Harowe impacted the increase in 1995. The increase in both
periods reflects management's continued commitment to the design
of new products and improvement of existing products.
INTEREST AND DEBT EXPENSE. Interest and debt expense increased
$1,057,000, or 444% in 1996 as compared to 1995. This increase
was due to the outstanding debt associated with the industrial
revenue bond financings secured for the expansion of the Air
Technologies facility and the purchase of API Ketema. Also
contributing to the increase in interest and debt expense was the
debt incurred under the revolving credit agreement in connection
with the acquisition of API Ketema and API Gettys.
Interest and debt expense increased $18,000 or 8.2% in 1995 as
compared to 1994. The increase was due to lower average principal
balances in 1995, offset by slightly higher interest rates. While
total debt increased in 1995 due to the industrial revenue bond
financing of $6,660,000, there was only a minor impact on
interest and debt expense because this financing was obtained on
December 22, 1995. Another contributing factor was the increased
activity in short-term borrowings in 1995 as compared to 1994.
14
<PAGE> 15
INCOME TAXES. Income taxes expressed as a percent of earnings
before taxes were 34.7%, 34.5%, and 35.3% in 1996, 1995, and
1994, respectively. The lower rates in 1996 and 1995 can be
attributed to the undistributed earnings of Harowe (St. Kitts),
the Company's foreign subsidiary, for which no federal tax has
been provided since it is the intention of the Company to
reinvest those earnings in the operations of that entity for an
indefinite period of time.
NET EARNINGS. Net earnings increased 37.9% in 1996 as compared
to 1995 and 37.9% in 1995 as compared to 1994. A substantial
part of these increases can be attributed to the increased net
sales as discussed previously, offset by higher selling and
administrative, research and product development costs, and
interest and debt expense.
FINANCIAL POSITION. The Company's liquidity is generated
primarily from operations. In addition, short-term lines of
credit totaling $4,232,000 and revolving credit of $7,000,000
were available at January 3, 1997. Information on the Company's
liquidity position for the past three years is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C>
Net working capital $ 24,192,000 $ 18,463,000 $ 14,197,000
Current ratio 2.4 2.4 2.3
Cash flow from operations $ 7,755,000 $ 3,786,000 $ 3,267,000
Cash, cash equivalents, and
marketable securities $ 2,412,000 $ 5,979,000 $ 3,841,000
Capital expenditures $ 8,319,000 $ 4,585,000 $ 1,857,000
</TABLE>
The credit available under the Revolving Credit was reduced to
$2.4 million following the consummation of the Schmidt-Bretten
acquisition on January 31, 1997. Future acquisitions may require
the Company to arrange additional credit facilities with lenders
or procure financing through issuance of debt or equity
securities.
The increase in cash flow from operations from 1996 as compared
to 1995 is the combined result of increased sales and net
income, as well as the positive effects generated from the
acquisition of API Ketema and API Gettys.
The increase in cash flow from operations from 1995 as compared
to 1994 is principally the result of the increased sales volume
and the resulting net income.
The increase in capital expenditures in 1996 as compared to 1995
reflects the new building associated with the Air Technologies
expansion program, as well as
15
<PAGE> 16
significant investments in new machinery and equipment. Also
reflected in capital expenditures are investments in new
machinery and equipment acquired by API Ketema and API Gettys
since their respective dates of acquisition.
The increase in capital expenditures in 1995 as compared to 1994
reflects the Company's investment in new machinery and equipment
and computer systems at both the Heat Transfer and Motion
Technologies Groups.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
American Precision Industries Inc.
In our opinion, the consolidated financial statements listed in
the index appearing under Item 14 (a)(1) on page 40 present
fairly, in all material respects, the financial position of
American Precision Industries Inc. and its subsidiaries at
January 3, 1997 and December 29, 1995, and the results of their
operations and their cash flows for each of the three years in
the period ended January 3, 1997, in conformity with generally
accepted accounting principles. These financial statements are
the responsibility of the Company's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing
standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Buffalo, New York
February 17, 1997
16
<PAGE> 17
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
ASSETS
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,412,000 $ 2,486,000
Accounts receivable less allowance for
doubtful accounts of $487,000 and $264,000 17,912,000 12,691,000
Marketable securities -- 3,493,000
Inventories 17,431,000 10,589,000
Prepaid expenses 1,137,000 967,000
Deferred income tax benefit 2,094,000 1,389,000
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 40,986,000 31,615,000
- --------------------------------------------------------------------------------
INVESTMENTS 3,279,000 6,277,000
OTHER ASSETS
Cost in excess of net assets acquired, net of
accumulated amortization 4,472,000 2,153,000
Prepaid pension costs 2,104,000 2,140,000
Net cash value of life insurance 2,655,000 2,222,000
Other 1,310,000 1,115,000
- --------------------------------------------------------------------------------
TOTAL OTHER ASSETS 10,541,000 7,630,000
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 665,000 211,000
Buildings and improvements 13,549,000 6,183,000
Machinery, equipment, and furniture 32,589,000 22,265,000
Construction in process 1,502,000 1,450,000
- --------------------------------------------------------------------------------
48,305,000 30,109,000
Less accumulated depreciation 21,099,000 17,840,000
- --------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 27,206,000 12,269,000
- --------------------------------------------------------------------------------
$82,012,000 $57,791,000
</TABLE>
See notes to consolidated financial statements
17
<PAGE> 18
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
CURRENT LIABILITIES
<S> <C> <C>
Short-term borrowings $ -- $ 2,602,000
Accounts payable 8,511,000 5,136,000
Accrued compensation and payroll taxes 5,167,000 3,566,000
Other accrued expenses 1,341,000 757,000
Dividends payable 471,000 463,000
Current portion of long-term obligations 1,292,000 628,000
Federal and state income taxes 12,000 --
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 16,794,000 13,152,000
- --------------------------------------------------------------------------------
DEFERRED INCOME TAXES 1,417,000 1,251,000
OTHER NONCURRENT LIABILITIES 1,046,000 413,000
LONG-TERM OBLIGATIONS,
less current portion 22,211,000 8,628,000
SHAREHOLDERS' EQUITY
Common stock, par value $.66 2/3 per share:
Authorized - 10,000,000 shares
Issued - 7,666,011 and
7,502,000 shares 5,110,000 5,001,000
Additional paid-in capital 11,065,000 9,532,000
Retained earnings 27,281,000 22,629,000
Minimum pension liability change, net of tax (74,000) --
Net unrealized gain on
marketable securities -- 23,000
- --------------------------------------------------------------------------------
43,382,000 37,185,000
Less cost of 374,262 treasury shares 2,838,000 2,838,000
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 40,544,000 34,347,000
- --------------------------------------------------------------------------------
$ 82,012,000 $ 57,791,000
</TABLE>
See notes to consolidated financial statements
18
<PAGE> 19
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS
1996 1995 1994
<S> <C> <C> <C>
NET SALES $116,783,000 $ 82,403,000 $ 64,896,000
INVESTMENT INCOME 327,000 257,000 369,000
- --------------------------------------------------------------------------------------------
REVENUES 117,110,000 82,660,000 65,265,000
- --------------------------------------------------------------------------------------------
COSTS AND EXPENSES
COST OF PRODUCTS SOLD 77,652,000 55,289,000 43,270,000
SELLING AND ADMINISTRATIVE 26,410,000 18,801,000 15,582,000
RESEARCH AND PRODUCT DEVELOPMENT 1,759,000 1,111,000 888,000
INTEREST AND DEBT EXPENSE 1,295,000 238,000 220,000
- --------------------------------------------------------------------------------------------
107,116,000 75,439,000 59,960,000
- --------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 9,994,000 7,221,000 5,305,000
FEDERAL AND STATE INCOME TAXES 3,469,000 2,490,000 1,874,000
- --------------------------------------------------------------------------------------------
NET EARNINGS $ 6,525,000 $ 4,731,000 $ 3,431,000
- --------------------------------------------------------------------------------------------
NET EARNINGS PER COMMON SHARE $ .91 $ .67 $ .49
- --------------------------------------------------------------------------------------------
NET EARNINGS PER COMMON SHARE - FULLY DILUTED* $ .86 $ .65 $ --
- --------------------------------------------------------------------------------------------
AVERAGE COMMON SHARE OUTSTANDING 7,190,000 7,090,000 7,062,000
AVERAGE COMMON SHARES OUTSTANDING-FULLY DILUTED 7,605,000 7,330,000 --
</TABLE>
* Anti-dilutive in 1994.
See notes to consolidated financial statements.
19
<PAGE> 20
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss)
Common Stock Additional on Minimum
---------------------- Paid-in Retained Marketable Pension
Shares Amount Capital Earnings Securities Liability
---------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 7,436,103 $4,958,000 $9,073,000 $18,043,000 $ - $ -
Net earnings - 1994 - - - 3,431,000 - -
Stock options
exercised, net 5,945 3,000 25,000 - - -
Cash dividends
declared,
$.2475 per share - - - (1,748,000) - -
Net unrealized (loss)
on marketable
securities - - - - (18,000) -
- --------------------------------------------------------------------------------------------------------------------------
Balance at
December 30, 1994 7,442,048 4,961,000 9,098,000 19,726,000 (18,000) -
Net earnings - 1995 - - - 4,731,000 - -
Stock options
exercised, net 59,952 40,000 422,000 - - -
Treasury shares issued
as bonus - - 12,000 - - -
Cash dividends
declared,
$.2575 per share - - - (1,828,000) - -
Net unrealized gain
on marketable
securities - - - - 41,000 -
- --------------------------------------------------------------------------------------------------------------------------
Balance at
December 29, 1995 7,502,000 5,001,000 9,532,000 22,629,000 23,000 -
Net earnings - 1996 - - - 6,525,000 - -
Stock options
exercised, net 164,011 109,000 1,533,000 - - -
Cash dividends
declared,
$.26 per share - - - (1,873,000) - -
Minimum pension
liability changes, net - - - - - (74,000)
Net unrealized (loss)
on marketable
securities - - - - (23,000) -
- --------------------------------------------------------------------------------------------------------------------------
Balance at
January 3, 1997 7,666,011 $5,110,000 $11,065,000 $27,281,000 $0.00 ($74,000)
<CAPTION>
Treasury Stock
------------------------
Shares Amount
-------- --------
<S> <C> <C>
Balance at
December 31, 1993 378,262 $2,862,000
Net earnings - 1994 - -
Stock options
exercised, net - -
Cash dividends
declared,
$.2475 per share - -
Net unrealized (loss)
on marketable
securities - -
- --------------------------------------------------------------
Balance at
December 30, 1994 378,262 2,862,000
Net earnings - 1995 - -
Stock options
exercised, net - -
Treasury shares issued
as bonus (4,000) (24,000)
Cash dividends
declared,
$.2575 per share - -
Net unrealized gain
on marketable
securities - -
- --------------------------------------------------------------
Balance at
December 29, 1995 374,262 2,838,000
Net earnings - 1996 - -
Stock options
exercised, net - -
Cash dividends
declared,
$.26 per share - -
Minimum pension
liability changes, net - -
Net unrealized (loss)
on marketable
securities - -
- --------------------------------------------------------------
Balance at
January 3, 1997 374,262 $2,838,000
</TABLE>
See notes to consolidated financial statements
20
<PAGE> 21
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S> <C> <C> <C>
Net earnings $ 6,525,000 $ 4,731,000 $ 3,431,000
Adjustments to reconcile net income to cash and
cash equivalents provided by operating activities:
Depreciation and amortization 3,785,000 2,594,000 2,275,000
Gain on sale of investments/fixed assets 46,000 42,000 --
Increase in supplemental benefit program 100,000 125,000 176,000
Recognition of pension expense (income) under FASB #87 36,000 (136,000) (280,000)
Stock compensation programs 582,000 202,000 --
Change in various allowance accounts (639,000) (95,000) 91,000
Treasury stock issued as bonus -- 36,000 --
(Increase) Decrease in:
Accounts receivable (472,000) (2,028,000) (2,168,000)
Inventories (2,006,000) (1,785,000) (1,267,000)
Prepaid expenses (115,000) (75,000) (199,000)
Prepaid federal and state income taxes 6,000 -- 58,000
Deferred income taxes (691,000) (386,000) (267,000)
Prepaid pension cost -- -- (24,000)
Net cash value of life insurance (433,000) (571,000) (548,000)
Other assets, net (459,000) (475,000) (140,000)
Increase (Decrease) in:
Accounts payable 1,613,000 373,000 953,000
Accrued expenses (385,000) 902,000 1,062,000
Federal and state income taxes 12,000 (79,000) (93,000)
Deferred income taxes 199,000 376,000 31,000
Other noncurrent liabilities 51,000 35,000 176,000
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by Operating Activities 7,755,000 3,786,000 3,267,000
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Investments in API Gettys & API Ketema net of cash &
cash equivalents acquired (17,359,000) -- --
Purchases of investments and marketable securities (127,000) (6,233,000) (2,546,000)
Additions to property, plant and equipment (8,319,000) (4,585,000) (1,857,000)
Proceeds from investments and marketable securities 6,609,000 1,797,000 7,225,000
Investment in Harowe Servo Controls Inc. -- -- (5,195,000)
Proceeds from sale of fixed assets 46,000 36,000 7,000
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used by Investing Activities (19,150,000) (8,985,000) (2,366,000)
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Exercise of stock options 1,642,000 462,000 28,000
Payments of long-term obligations, including current maturities (1,785,000) (368,000) (519,000)
Dividends paid (1,865,000) (1,806,000) (1,730,000)
Increase in long-term debt 15,931,000 6,660,000 --
(Decrease) increase in short-term Borrowings (2,602,000) 602,000 2,000,000
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by Financing Activities 11,321,000 5,550,000 (221,000)
- -------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (74,000) 351,000 680,000
Cash and Cash Equivalents at Beginning of Year 2,486,000 2,135,000 1,455,000
- -------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 2,412,000 $ 2,486,000 $ 2,135,000
</TABLE>
See notes to consolidated financial statements
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended January 3, 1997, December 29, 1995, and December 30, 1994.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) NATURE OF OPERATIONS American Precision Industries Inc. (the
"Company") is a diversified manufacturing company whose principal
lines of business include the production and sale of heat transfer
products, motion control devices, and electronic components. Sales of
these products are primarily to customers in industrialized nations
both domestic and foreign.
(2) CONSOLIDATION The accounts of all subsidiaries are included in the
consolidated financial statements. The fiscal years consisted of 52
weeks, except for 1996 which consisted of 53 weeks and ended on
January 3, 1997. The Statement of Earnings and Statement of Cash Flows
include the results of API Ketema and API Gettys since April 1, 1996
and April 19, 1996, respectively, the dates of acquisition. The
Consolidated Statement of Earnings and Statement of Cash Flows also
includes the results of Harowe Servo Controls Inc. since June 30,
1994, the date of acquisition.
(3) INVENTORIES Inventories are valued at the lower of cost or market, net
of progress payments. At January 3, 1997 and December 29, 1995
inventories comprising approximately 61% and 50%, respectively, of
total inventories were valued using the last-in, first-out (LIFO)
method. Other inventories are priced using the first-in, first-out
(FIFO) method.
(4) PROPERTY, PLANT AND EQUIPMENT These assets are stated at cost and are
depreciated over their estimated useful lives; building and
improvements - 10 to 45 years; machinery, equipment, and furniture - 2
to 15 years.
Expenditures for maintenance and repairs are charged to expense;
renewals and betterments are capitalized and depreciated. Properties
are removed from the accounts when they are disposed of, and the
related cost and accumulated depreciation are eliminated from the
accounts. Associated gains and losses, if any, are included in
consolidated net earnings.
The Company adopted the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" on January 1, 1996. Adoption of this Statement had no
impact on the Company's financial position, results of operations, or
liquidity.
22
<PAGE> 23
(5) GOODWILL The excess of the purchase cost over the fair value of net
assets acquired in an acquisition (goodwill) is separately disclosed,
net of accumulated amortization, and is being amortized over 25 years
on a straight-line basis. Amortization expense amounted to $163,000 in
1996 and $102,000 in 1995. Accumulated amortization of goodwill at
January 3, 1997 was $309,000.
(6) INCOME TAXES The Company provides for deferred income taxes under the
asset and liability approach. This method requires the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and
tax basis of assets and liabilities. No provision has been made for
United States income taxes applicable to undistributed earnings of a
foreign subsidiary as it is the intention of the Company to
indefinitely reinvest those earnings in the operations of that entity.
(7) EMPLOYEE BENEFIT PLANS Benefits under the Company's salaried defined
benefit and supplemental benefit plans are based upon years of service
and average compensation during an individual's last years of
employment for the defined benefit plan and final pay for the
supplemental benefit plan.
Benefits under the salaried defined benefit plan are funded annually
based upon the maximum contribution deductible for federal income tax
purposes. The supplemental benefit program is funded through
company-owned life insurance contracts on the lives of the
participants, but the benefit obligation to certain participants will
be offset by the participant's interest in a split-dollar insurance
contract.
Benefits under the hourly defined benefit plan of Harowe are based
upon years of service, not to exceed 35, times a fixed rate specified
in the union contract. Benefits under this plan are funded annually
based upon funding recommendations of the plan actuaries.
All union employees are covered under defined contribution plans. The
Company's contribution to these plans are set forth under the
provisions of the specific union contracts.
(8) STOCK OPTIONS Proceeds from the sale of common stock issued under
employee stock option plans are credited to capital accounts. There
are no charges to income with respect to the plans; however,
compensation expense is recorded with respect to the increase in value
of stock appreciation rights. The Company has adopted certain
disclosure requirements as prescribed by FASB Statement No. 123.
23
<PAGE> 24
(9) EARNINGS PER SHARE Earnings per share are based on the weighted
average number of shares outstanding during each year. Net earnings
per common share are based on the weighted average number of common
shares outstanding during the respective years. The effect of common
stock equivalents, consisting of stock options, on net earnings per
common share is not material except on a fully diluted basis in 1996.
(10) ADVERTISING The Company expenses the production costs of advertising
in the year in which the advertising takes place. Total advertising
expense in 1996, 1995, and 1994 was $879,000, $874,000, and $664,000,
respectively.
(11) ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
B. BUSINESS ACQUISITIONS
BUSINESS ACQUISITIONS On April 1, 1996, API Ketema Inc., a wholly-owned
subsidiary of the Company, acquired the assets and assumed certain
liabilities of the Heat Transfer Division (HTD) of Ketema, Inc. at a cost
of approximately $12,000,000. HTD manufactures shell and tube heat
exchangers, refrigeration condensers, and packaged chillers.
On April 19, 1996, API Gettys Inc., a wholly-owned subsidiary of the
Company acquired the assets and assumed certain liabilities of Gettys
Corporation and Gettys Property Corporation (Gettys) at a cost of
approximately $4,800,000. Gettys manufactures AC and DC servo motors,
amplifiers, and control electronics.
On June 30, 1994, the Company acquired 100% of the stock of Harowe Servo
Controls, Inc. (HSC), a Delaware corporation and Harowe Servo Controls (St.
Kitts) Limited (HSC Limited), a corporation organized under the laws of the
Island of St. Christopher and Nevis, from Hawker Siddeley Holdings Inc., at
a cost of approximately $5,200,000.
The following table presents unaudited pro forma results of operations as
if the acquisition of HSC and HSC Limited had occurred on January 1, 1994
and 1993, respectively, and the acquisition of HTD and Gettys had occurred
on January 1, 1996 and 1995, respectively, after giving effect to certain
adjustments, including amortization of goodwill, loss of interest income on
tax-exempt municipal bonds sold to fund the purchase cost, adjusted
depreciation
24
<PAGE> 25
of fair value of assets acquired, addition of interest expense on
additional debt required to fund the acquisitions, and the related income
tax effects. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have
occurred had the acquisitions occurred at the beginning of 1995 for Gettys
and Ketema and 1993 for HSC and HSC Limited or of results which may occur
in the future. Furthermore, no effect has been given in the pro forma
information for operating and synergistic benefits that are expected to be
realized through the combination of the entities because precise estimates
of such benefits cannot be quantified.
<TABLE>
<CAPTION>
Thousands of Dollars,
Except per Share Data
(Unaudited) 1996 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $125,778 $116,762 $ 69,631 $ 61,195
Earnings before Income Taxes $ 10,416 $ 4,585 $ 5,641 $ 3,681
Net Earnings $ 6,863 $ 2,972 $ 3,517 $ 2,335
Net Earnings Per
Common Share $ .95 $ .42 $ .50 $ .33
Net Earnings Per Common
Share - Fully diluted $ .90 $ .41 $ -- $ --
</TABLE>
C. CASH EQUIVALENTS, MARKETABLE SECURITIES, AND INVESTMENTS
(1) Cash equivalents consist of money market funds, commercial paper, and
certificates of deposit with original maturities of three months or
less. Marketable securities, consisting of municipal bonds, are
carried at market. Investments primarily consist of marketable
municipal bonds, which are carried at market. Included in Investments
in 1996 and 1995 is $3,272,000 and $6,233,000 of funds obtained under
industrial revenue bond financing. Use of these funds is restricted
and can only be applied to the purchase of capital assets for the
related expansion program.
For the purpose of determining gross realized gains and losses, the
cost of securities sold is based upon specific identification.
The Company classifies debt and equity securities not classified as
either held-to-maturity or trading as "available for sale" and
reported at market value. Unrealized gains and losses are reported as
a separate component of shareholders' equity.
25
<PAGE> 26
<TABLE>
<CAPTION>
(2) Additional information pertaining to the Consolidated Statement of Cash Flows is as follows:
- --------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------
Cash paid during the year for:
<S> <C> <C> <C>
Interest $1,038,000 $ 225,000 $ 184,000
Income taxes net of tax refunds $3,598,000 $2,513,000 $2,145,000
D. INVENTORIES
<CAPTION>
The major classes of inventories are as follows:
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 3,867,000 $ 995,000
Work in process 3,834,000 2,538,000
Raw materials 9,730,000 7,056,000
- --------------------------------------------------------------------------------
$17,431,000 $10,589,000
</TABLE>
Had the cost of all inventories at January 3, 1997 and December 29, 1995
been determined by the FIFO method, the amounts thereof would have been
greater by $1,147,000 and $1,187,000, respectively.
E. OTHER NONCURRENT LIABILITIES
In 1996 and 1995, other noncurrent liabilities consist of the noncurrent
portion of bonus obligations under the Company's incentive plans, deferred
compensation associated with the stock appreciation rights granted to the
Chief Executive Officer in 1992, and discount on options granted to certain
members of the Board of Directors of the Company in lieu of certain
directors' fees.
F. SHORT AND LONG-TERM OBLIGATIONS
(1) Short-Term Obligations There were no significant short-term borrowings
during 1996. As of December 29, 1995, the Company had $2,602,000
outstanding on its line of credit. This amount was outstanding for
four business days. The Company had available unsecured, short-term
lines of credit totaling $4,232,000 and $7,398,000 at the prime rate
on January 3, 1997 and December 29, 1995, respectively.
26
<PAGE> 27
<TABLE>
<CAPTION>
(2) LONG-TERM OBLIGATIONS CONSIST OF THE FOLLOWING:
- -------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Industrial revenue bonds $13,405,000 $ 8,112,000
Revolving credit debt 9,000,000 --
Supplemental benefit program 1,098,000 1,144,000
- --------------------------------------------------------------------------------
23,503,000 9,256,000
Less current obligations 1,292,000 628,000
- --------------------------------------------------------------------------------
Long-term obligations $22,211,000 $ 8,628,000
</TABLE>
During 1996 the Company entered into a Credit Agreement with Marine Midland
Bank which provides an unsecured Revolving Credit facility of $16,000,000.
The Revolving Credit matures on March 29, 1999, at which time the Company
may convert the amount outstanding under the Revolving Credit to a term
loan payable over a four year term. The interest rate on the Revolving
Credit as of January 3, 1997, under the LIBOR Rate Option in the Credit
Agreement, was 6.33%.
During the third quarter of 1996, the Company concluded a $6,000,000
15-year industrial revenue bond ("IRB") financing with the Grand Prairie
Industrial Development Authority. Substantially all of the proceeds were
used in connection with the purchase of the Heat Transfer Division of
Ketema, Inc. on April 1, 1996.
During the fourth quarter of 1995, the Company obtained adjustable rate IRB
capital lease financing of $6,660,000 for asset purchases associated with
its Air Technologies expansion program.
Unexpended revenue bond proceeds of $3,272,000 were held and invested by a
trustee at the end of 1996 and are included in Investments in the
accompanying consolidated balance sheet. Such amount is restricted and can
only be applied to the purchase of capital assets for the related expansion
program, and such assets will be pledged as collateral for the bonds.
The adjustable rate IRB capital lease financing is collateralized by assets
with a depreciated value of $11,314,000 at January 3, 1997.
The interest rate on the IRBs approximates 60% of the prime rate and is
adjustable every seven days in order for the Remarketing Agent to sell the
bonds at par value.
27
<PAGE> 28
The following are the weighted average interest and debt expense rates for
1996:
Industrial Revenue Bonds 5.51%
Revolving Credit Debt 6.13%
All the industrial revenue bonds are subject to mandatory sinking fund
repayment schedules with various dates extending through 2015. The
Revolving Credit and each of the IRB's are subject to various restrictive
covenants, with respect to which the Company is in compliance.
Under the supplemental benefit program, the Company provides retirement or
death benefits to directors and certain officers meeting specified service
requirements. Directors are entitled to an annual benefit of $10,000 per
year for ten years. Participating officers are provided an annual benefit
equal to 20% of their current salary payable over fifteen years, except for
the Chief Executive Officer whose annual benefit, payable over fifteen
years, is currently approximately $112,000 and indexed to the Consumer
Price Index. In the case of several executives, these benefits will be
partially or totally funded through split-dollar life insurance contracts.
The estimated future benefits to be paid directly by the Company under this
program are accrued over the participants' service lives by estimating the
present value of such future benefits assuming a 9% rate of interest. The
Company has also invested in company-owned life insurance contracts on the
lives of the participants, the cash surrender values of which are recorded
in Other Assets. It is actuarially assumed that over the term of this
program all costs will be offset by benefits provided from the underlying
contracts.
Over the next five years, the Company will make long-term obligation
payments of approximately $1,292,000 in 1997, $1,322,000 in 1998,
$1,358,000 in 1999, $1,378,000 in 2000, and $1,371,000 in 2001. Such
amounts exclude the revolving credit.
G. OPERATING LEASES
The Company leases certain office and manufacturing facilities and
automotive and other equipment through operating leases. Certain of these
provide for the payment of taxes, insurance and maintenance costs and most
contain renewal options. Net future minimum lease commitments do not have a
material impact on the consolidated financial statements. Total rental
expense for 1996, 1995, and 1994, was $730,000, $587,000, and $568,000,
respectively.
28
<PAGE> 29
H. EMPLOYEE BENEFITS
Retirement Plans - In addition to the aforementioned supplemental benefit
program, the Company has a defined benefit retirement plan covering all
nonunion employees ("Salaried Plan") and makes contributions to
union-sponsored plans. Harowe has a defined benefit retirement plan
covering all hourly employees in its West Chester, Pennsylvania location
("HSC Hourly Plan"). The total expense for such plans, net of the
recognition of net periodic pension income was $392,000, $227,000, and
$44,000, in 1996, 1995, and 1994, respectively.
The following summarizes the funded status of the Company's and Harowe's
defined benefit retirement plans:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1996 1995
HSC HSC
HOURLY SALARIED HOURLY SALARIED
PLAN PLAN PLAN PLAN
- --------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit
obligations
<S> <C> <C> <C> <C>
Vested Benefits $ 724,000 $ 5,401,000 $ 712,000 $ 4,649,000
Nonvested benefits 10,000 106,000 17,000 74,000
- -------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations 734,000 5,507,000 729,000 4,723,000
- -------------------------------------------------------------------------------------------------------------
Projected benefit obligations 724,000 6,556,000 729,000 5,646,000
Plan assets at fair value 385,000 10,396,000 393,000 9,336,000
- -------------------------------------------------------------------------------------------------------------
Assets in excess of (less than)
projected benefit obligation (339,000) 3,840,000 (336,000) 3,690,000
Unrecognized prior service cost 187,000 -- 13,000 30,000
Less:
Accumulated unrecognized net loss -- -- 20,000 --
Unrecognized net gain (loss) at
transition being recognized
over 15 years (77,000) 491,000 -- 614,000
Additional minimum liability 107,000
Unrecognized net gain arising
since transition -- 1,492,000 -- 973,000
- -------------------------------------------------------------------------------------------------------------
(Accrued) prepaid pension cost $ (339,000) $ 2,044,000 $ (316,000) $ 2,116,000
</TABLE>
29
<PAGE> 30
Net periodic pension (cost) income associated with the salaried plan and
the HSC Hourly Plan for 1996 and 1995 included the following components:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------
HSC HSC
HOURLY SALARIED HOURLY SALARIED
PLAN PLAN PLAN PLAN
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service costs - benefits earned
during the period $ (21,000) $(577,000) $ (19,000) $(347,000)
Interest on projected benefit
obligations (51,000) (440,000) (51,000) (392,000)
Actual return on assets 14,000 831,000 24,000 754,000
Amortization of transition
assets and deferrals 7,000 113,000 -- 121,000
- ----------------------------------------------------------------------------------------
Net periodic pension (cost) income $ (51,000) $ (73,000) $ (46,000) $ 136,000
</TABLE>
An assumed discount rate of 7.75%, a rate increase in future compensation
of 4.0%, and an expected long-term rate of return of 9.0% have been used in
determining the actuarial present value of projected benefit obligations of
the Salaried Plan for 1996 and 1995. The HSC Hourly Plan includes an
assumed discount rate and expected long-term rate of return of 7.5% for
1996 and 1995.
I. FAIR VALUE OF FINANCIAL INSTRUMENTS
During 1996, the Company adopted the provisions of Statement of Financial
Accounting Standard No. 107, "Disclosures about Fair Value of Financial
Instruments". This statement requires that companies disclose the estimated
"fair value" of their financial instruments. Financial instruments
primarily consist of trade receivables and payables, investments in
municipal bond funds, and debt facilities with various third party lenders.
At January 3, 1997, management believes the carrying amounts of financial
instruments, approximates fair value.
J. SHAREHOLDERS' EQUITY
(1) PREFERRED STOCK - None of the Company's authorized 20,000 shares
of preferred stock (par value $50 a share) have been issued.
(2) STOCK OPTIONS - The Company has granted incentive stock options (ISO)
to officers and other key employees and nonqualified options (NQO) for 100
common shares to most other employees after one year of employment. The
grants were made at an exercise price of not less than 100% of the market
value on the date of grant. Options may be exercised in cumulative annual
increments of 20% for ISOs and 50% for NQOs beginning one year from the
date of grant. All options expire ten years from date of grant.
30
<PAGE> 31
The Company applies APB Opinion No. 25 in accounting for its stock option
plans. Accordingly, no compensation expense has been charged to earnings
for options granted in 1996 and 1995 since all such options have an
exercise price equal to 100% of market value on the date of grant. Had the
Company adopted the provisions of FASB Statement No. 123, compensation
expense for options granted in 1996 and 1995 would have reduced the
Company's net earnings and earnings per share to the pro forma amounts
shown below.
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
Net earnings:
<S> <C> <C>
As reported $6,525,000 $4,731,000
Pro forma $6,217,000 $4,636,000
Earnings per share:
As reported - per common share $.91 $.67
As reported - fully diluted $.86 $.65
Pro forma - per common share $.86 $.65
Pro forma - fully diluted $.82 $.63
</TABLE>
The fair value of each option granted in 1996 and 1995 was estimated using
the Black-Scholes option pricing model with the following assumptions for
1996 and 1995, respectively:
risk-free interest rates of 6.6% and 7.1%; dividends of 0 and $.19;
expected term of 9.2 years and 9.2 years; annual standard deviation
(volatility) of 25% and 24%.
The weighted average fair value of options granted in 1996 and 1995
was $6.32 and $4.67, respectively.
31
<PAGE> 32
A summary of the status of options granted under all employee plans and
pursuant to the employment of the Company's Chief Executive Officer is
presented below.
<TABLE>
<CAPTION>
Number of Weighted
Shares Average
Subject to Exercise
Options Price ($)
---------- --------
<S> <C> <C>
Outstanding December 31, 1993 781,826 8.18
Granted in 1994 157,500 6.84
Exercised in 1994 (7,059) 5.11
Forfeited in 1994 (41,277) 8.20
- -------------------------------------------------------------
Outstanding December 30, 1994 890,990 8.05
Granted in 1995 214,350 9.22
Exercised in 1995 (79,430) 7.76
Forfeited in 1995 (14,085) 7.49
- -------------------------------------------------------------
Outstanding December 29, 1995 1,011,825 8.33
Granted in 1996 212,500 12.48
Exercised in 1996 (181,081) 8.58
Forfeited in 1996 (41,287) 8.04
- -------------------------------------------------------------
Outstanding January 3, 1997 1,001,957 9.15
</TABLE>
The number of shares subject to options exercisable at the end of 1996,
1995, and 1994 were 488,087, 470,970, and 486,315, respectively.
32
<PAGE> 33
The following table summarizes information about options outstanding at
January 3, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------ -----------------------------
Weighted-
average Weighted- Weighted-
Range of remaining average average
Exercise Number contractual exercise Number exercise
Prices ($) Outstanding life price ($) exercisable price ($)
------------------------------------------------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C>
6.625 - 9.76 709,046 6.1 years 7.93 419,026 7.87
10.50 - 13.00 288,911 7.8 years 12.00 69,061 10.95
17.625 4,000 9.9 years 17.63 0 -
</TABLE>
On June 16, 1992, the Company's new Chief Executive Officer was granted
options to acquire 200,000 shares of the Company's common stock, along with
50,000 stock appreciation rights (SARs) which must be exercised in tandem
with the exercise of the options at the rate of one SAR for each four
options exercised. The options and SARs have a term of ten years, are
exercisable at $7.75 per share or right, the fair market value at date of
grant, and become exercisable over a five year period at the rate of 20%
per year. Data related to the CEO options are included in the tables above.
The Company recorded compensation expense of $452,000 and $148,000 in 1996
and 1995, respectively, in connection with the increase in value of the
SARs.
Beginning on July 1, 1995, the Company has granted stock options to certain
directors of the Company on the first day of each calendar quarter under
the 1995 Directors Stock Option Plan. Under this plan, a director may elect
to receive options in lieu of his annual cash retainer and meeting fees.
The option exercise price is 30% of the fair market value of a share on the
date of grant, and the cash fees foregone by the director are equivalent to
70% of the fair market value. Options become exercisable six months after
date of grant and expire ten years from date of grant. Options outstanding
January 3, 1997 totaled 23,336 shares, of which 16,179 were exercisable on
that date and 26,664 shares were available for future grants of options
under the plan.
K. INVESTMENT INCOME
Investment income consists of the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C>
Gain on sale of investments $ 27,000 $ -- $ 2,000
Interest and dividend income 300,000 257,000 367,000
-------------------------------------------------------------------------
$327,000 $257,000 $369,000
</TABLE>
33
<PAGE> 34
L. INCOME TAXES
<TABLE>
<CAPTION>
The provision for income taxes includes the following:
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ 3,434,000 $ 2,114,000 $ 1,830,000
Deferred (421,000) 4,000 (187,000)
State:
Current 527,000 368,000 280,000
Deferred (71,000) 4,000 (49,000)
- -------------------------------------------------------------------------------
$ 3,469,000 $ 2,490,000 $ 1,874,000
</TABLE>
The provision for income taxes for 1996 does not include the tax benefit of
$346,000 associated with the exercise of stock options which has been credited
to paid in capital.
Deferred tax liabilities (assets) at January 3, 1997 and December 29,1995 are
comprised of the following:
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Accelerated depreciation $ 662,000 $ 662,000
Pension 780,000 844,000
Other 340,000 311,000
- --------------------------------------------------------------------------------
Gross deferred tax liabilities 1,782,000 1,817,000
- --------------------------------------------------------------------------------
Deferred compensation (803,000) (623,000)
Various reserves (824,000) (634,000)
Other (832,000) (698,000)
- --------------------------------------------------------------------------------
Gross deferred tax assets (2,459,000) (1,955,000)
- --------------------------------------------------------------------------------
Deferred tax assets valuation allowance -- --
- --------------------------------------------------------------------------------
$ (677,000) $ (138,000)
34
<PAGE> 35
The provision for income tax differs from the federal statutory rate of 34%
due to the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State income taxes, less federal effect 2.9 3.3 2.9
Nontaxable investment income (0.6) (0.9) (1.7)
Effect of undistributed net earnings
of foreign subsidiaries (1.3) (2.2) --
Other (0.3) 0.3 0.1
- -------------------------------------------------------------------------------
Effective tax rate 34.7% 34.5% 35.3%
</TABLE>
The Company has not recorded deferred income taxes applicable to
undistributed earnings of a foreign subsidiary that are indefinitely
reinvested in foreign operations. Undistributed earnings amounted to
approximately $978,000 at January 3, 1997. If the earnings of such foreign
subsidiary were not reinvested, a deferred tax liability of approximately
$374,000 would have been required.
M. SUBSEQUENT EVENT
On January 31, 1997, API Schmidt-Bretten GmbH, a newly formed wholly-owned
subsidiary of the Company organized under the laws of the Federal Republic
of Germany, acquired all of the shares of Schmidt-Bretten GmbH from Deutz
Aktiengesellschaft, formerly Kloeckner-Humboldt-Deutz AG, and KHD Humboldt
Wedag Aktiengesellschaft, both stock corporations organized under the laws
of the Federal Republic of Germany. Neither seller is affiliated with the
Company or any of its affiliates. The purchase price of DM 13,000,000
(approximately $7,900,000) was based upon the unaudited balance sheet of
Schmidt-Bretten GmbH at December 31, 1996. An amount of DM 10,000,000
(approximately $6,100,000) was paid in cash on January 31, 1997 and a note
for DM 3,000,000 (approximately $1,800,000) is due and payable on December
31, 1997. Payment of this final installment, which is subject to interest
at a per annum rate of 5.5% commencing as of January 31, 1997, is
guaranteed by the Company. The acquisition will be accounted for as a
purchase in 1997 in accordance with APB No. 16 Business Combinations.
The Company funded this transaction with funds borrowed under an existing
Credit Agreement with Marine Midland Bank dated March 29, 1996.
35
<PAGE> 36
N. BUSINESS SEGMENT DATA
The Company conducts operations in three major industrial classifications:
Heat Transfer Technology, Motion Technologies, and Electronic Components.
The operations of the Heat Transfer Technology segment include the
production and sale of water and air-cooled heat transfer equipment to
industrial customers. Operations of the Motion Technologies segment
comprises production and sale of electro-magnetic clutches and brakes, high
performance servo motors, stepper motors, controllers, and resolvers.
Operations of the Electronic Components segment involve production and sale
of inductors and coils.
Total revenues by segment consist entirely of sales to unaffiliated
customers. Operating profit is total revenue less operating expenses.
Operating profit does not include the following items: general corporate
income and expense, investment income, interest expense, other income and
expense, or income taxes. Identifiable assets by segment consist of those
assets that are, or will be, used in the segmental operations. Corporate
assets are principally cash, cash equivalents, marketable securities,
investments, and other assets.
Export sales, principally to Europe, Canada, Mexico, and Asia, were
approximately 15% of consolidated sales for 1996. In 1995 and 1994, export
sales were 14% and 17%, respectively of consolidated sales.
36
<PAGE> 37
Information about the Company's operations in different industries, stated in
thousands of dollars, are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
REVENUES
<S> <C> <C> <C>
Heat Transfer $ 63,536 $ 40,819 $ 33,276
Motion 40,016 28,599 19,674
Electronic Components 13,231 12,985 11,946
General Corporate 327 257 369
- --------------------------------------------------------------------------------
Consolidated $ 117,110 $ 82,660 $ 65,265
- --------------------------------------------------------------------------------
OPERATING PROFIT
Heat Transfer $ 8,230 $ 5,542 $ 5,331
Motion 3,908 2,466 614
Electronic Components 2,300 2,058 1,790
- --------------------------------------------------------------------------------
Combined 14,438 10,066 7,735
General Corporate expense, net (3,149) (2,607) (2,210)
Interest and debt exense (1,295) (238) (220)
- --------------------------------------------------------------------------------
Earnings before income taxes $ 9,994 $ 7,221 $ 5,305
- --------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Heat Transfer $ 42,357 $ 23,673 $ 14,607
Motion 22,274 15,179 12,370
Electronic Components 6,488 6,821 6,071
General Corporate 10,893 12,118 12,296
- --------------------------------------------------------------------------------
Total assets $ 82,012 $ 57,791 $ 45,344
- --------------------------------------------------------------------------------
DEPRECIATION
Heat Transfer $ 1,378 $ 877 $ 735
Motion 1,593 964 637
Electronic Components 534 558 598
General Corporate 58 61 62
- --------------------------------------------------------------------------------
Total Depreciation $ 3,563 $ 2,460 $ 2,032
- --------------------------------------------------------------------------------
NET CAPITAL EXPENDITURES
Heat Transfer $ 5,878 $ 1,789 $ 1,358
Motion 842 2,218 188
Electronic Components 575 449 259
General Corporate 77 33 10
- --------------------------------------------------------------------------------
Total net capital expenditures $ 7,372 $ 4,489 $ 1,815
- --------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 38
O. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL
FIRST SECOND THIRD FOURTH YEAR
- ---------------------------------------------------------------------------------------------------------
(Thousands except per share information)
<S> <C> <C> <C> <C> <C>
1996
Revenues $ 22,022 $ 31,541 $ 31,658 $ 31,889 $ 117,110
Gross profit 7,380 10,102 10,613 11,036 39,131
Net earnings 1,399 1,573 1,736 1,817 6,525
Net earnings per common share .20 .22 .24 .25 .91
Net earnings per common share
- fully diluted .19 .021 .23 .24 .86
Cash dividends declared per share .065 .065 .065 .065 .26
1995
Revenues $ 19,289 $ 20,360 $ 20,850 $ 22,161 $ 82,660
Gross profit 6,254 6,410 7,264 7,186 27,114
Net earnings 1,042 1,122 1,200 1,367 4,731
Net earnings per common share .15 .16 .17 .19 .67
Net earnings per common share
- fully diluted .15 .16 .16 .19 .65
Cash dividends declared per share .0625 .065 .065 .065 .2575
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There were no changes in accountants or disagreements with Price Waterhouse on
accounting or financial disclosure.
38
<PAGE> 39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this item concerning the directors and
executive officers of the Company, appearing in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders, which has been filed with the Commission pursuant to
Regulation 14A, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this item concerning executive
compensation appearing in the Company's definitive Proxy Statement for
its 1997 Annual Meeting of Shareholders, which has been filed with the
Commission pursuant to Regulation 14A, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
a) & b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
---------------------------------------------------------------
The information required by this item, appearing in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders, which has been filed with the Commission pursuant to
Regulation 14A, is incorporated herein by reference.
c) CHANGES IN CONTROL
------------------
The Company knows of no contractual arrangements which may, at a
subsequent date, result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
a) TRANSACTIONS WITH MANAGEMENT AND OTHERS
---------------------------------------
None.
b) CERTAIN BUSINESS RELATIONSHIPS
------------------------------
None.
c) INDEBTEDNESS OF MANAGEMENT
--------------------------
None.
d) TRANSACTIONS WITH PROMOTERS
---------------------------
None.
39
<PAGE> 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE IN
a) 1. FINANCIAL STATEMENTS FORM 10-K
-------------------- ----------
<S> <C>
Report of Independent Accountants 16
Consolidated Balance Sheet 17-18
Consolidated Statement of Earnings 19
Consolidated Statement of Shareholders' Equity 20
Consolidated Statement of Cash Flows 21
Notes to Consolidated Financial Statements 22-38
2. FINANCIAL STATEMENT SCHEDULES
-----------------------------
All schedules are omitted because they are inapplicable,
immaterial, or not required under the instructions, or the
information is included in the financial statements or notes
thereto.
b) REPORTS ON FORM 8-K
-------------------
There were no reports on Form 8-K for the three months ended
January 3, 1997.
c) EXHIBITS
--------
Exhibit No.
-----------
2-A Management Agreement dated December
23, 1994 among American Precision
Industries Inc., Gettys Corporation,
and Gettys Property Corporation,
including List of Exhibits, List of
Schedules, and Exhibit D - Asset
Purchase Agreement m.
2-B Credit Agreement between American
American Precision Industries Inc.
and Marine Midland Bank dated
March 29, 1996 k.
3-A Restated Certificate of Incorporation,
as amended on April 26, 1991 e.
3-B Restated By-Laws, as amended on
June 16, 1992 g.
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
C. EXHIBITS (CONTINUED)
--------------------
EXHIBIT NO.
-----------
<S> <C> <C> <C>
* 10-A Form of Agreement relating to the
Directors Supplemental Death Benefit
and Fee Continuation Plan, as amended
March 11, 1991 b.
* 10-B Form of Agreement relating to the
Executive Supplemental Death Benefit
and Retirement Plan, as amended on
March 11, 1991 b.
* 10-C Form of Indemnification Agreement with
directors dated February 25, 1991 c.
* 10-D Form of Indemnification Agreement with
officers dated February 25, 1991 b.
* 10-E Long-Term Incentive Stock Option Plan c.
* 10-F 1989 Stock Option Plan d.
* 10-G Amendment to the American Precision
Industries Inc. 1989 Stock Option Plan j.
* 10-H Executive Employment Agreement dated
April 14, 1992 between Kurt Wiedenhaupt
and American Precision Industries Inc. f.
* 10-I Stock Option and Tandem Stock Appreciation
Rights Agreement dated June 16, 1992
between Kurt Wiedenhaupt and American
Precision Industries Inc. f.
* 10-J Agreement dated April 24, 1992 between
Robert J. Fierle and American Precision
Industries Inc. f.
* 10-K Life Insurance Split-Dollar Agreement
dated August 26, 1992 between Kurt
Wiedenhaupt and American Precision
Industries Inc. h.
* 10-L Executive Supplemental Retirement Plan
dated July 1, 1992 between Kurt
Wiedenhaupt and American Precision
Industries Inc. h.
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
c. Exhibits (continued)
--------------------
Exhibit No.
-----------
<S> <C> <C> <C>
* 10-M 1993 Employees Stock Option Plan i.
* 10-N Amendment to the American Precision Industries
Inc. 1993 Employees Stock Option Plan j.
* 10-O 1995 Directors Stock Option Plan j.
* 10-P 1995 Employees Stock Option Plan j.
* 10-Q Form of Change in Control Agreement between
American Precision Industries Inc. and
James W. Bingel, John M. Murray, Craig J.
VanTine, and Richard S. Warzala dated
October 21, 1996 l.
* 10-R Change in Control in Agreement between
American Precision Industries Inc. and
Kurt Wiedenhaupt dated July 1, 1996 l.
* 10-S Amendment to and Restatement of Executive
Employment Agreement between American
Precision Industries Inc. and Kurt
Wiedenhaupt dated July 1, 1996 l.
* 10-T First Amendment to American Precision
Industries Inc. Grant of Restricted Stock
and bonus to Kurt Wiedenhaupt dated
July 1, 1996 l.
* 10-U Executive Supplemental Retirement Plan
(as restated) between American Precision
Industries Inc. and Kurt Wiedenhaupt dated
July 1, 1996 l.
* 10-V Amendment to Life Insurance Split-Dollar
Agreement between American Precision
Industries Inc. and Kurt Wiedenhaupt
dated as of July 1, 1994 l.
* 10-W Life Insurance Split-Dollar (as restated)
between American Precision Industries
Inc. and Kurt Wiedenhaupt dated
July 1, 1996 l.
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C> <C>
11 Computation of Earnings Per Share **
21 List of Subsidiaries **
23 Consent of independent accountants Page 49 of
Form 10-K
27 Financial Data Schedule **
* Management Contract or Compensatory Plan or Agreement.
** Documents filed herewith.
a. Incorporated by reference to Exhibits A and B in the
definitive Proxy Statement dated March 22, 1991.
b. Incorporated by reference to Exhibits 10A-D in the Annual
Report on Form 10-K for the fiscal year ended December 28,
1990.
c. Incorporated by reference to Exhibit 4.4 in the Registration
Statement on Form S-8 (#2-85320), filed July 22, 1983.
d. Incorporated by reference to Exhibit 4(a) in the
RegistrationStatement on Form S-8 (#33-31315) filed
September 28, 1989.
e. Incorporated by reference to Exhibits 3-B and 3-D in the
Annual Report on Form 10-K for the fiscal year ended January
3, 1992.
f. Incorporated by reference to Exhibits 10(i) - (iii) in the
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 3, 1992.
g. Incorporated by reference to Exhibits B(i) - (ii) in the
Quarterly Report on Form 10-Q for the fiscal quarter ended
October 1, 1993.
h. Incorporated by reference to Exhibits 10(i) - (ii) in the
Quarterly Report on Form 10-Q for the fiscal quarter ended
April 2, 1993.
i. Incorporated by reference to Exhibit A in the definitive
Proxy Statement dated March 22, 1993.
j. Incorporated by reference to Exhibits A-C in the definitive
Proxy Statement dated March 24, 1995.
k. Incorporated by reference to Exhibit 2(iii) in the Quarterly
Report on Form 10-Q for the fiscal quarter ended March 29,
1996.
l. Incorporated by reference to Exhibits 10(i)-(vii) in the
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 27, 1996.
m. Incorporate by reference to Exhibit 2-A in the Annual Report
on Form 10-K from the fiscal year ended December 30, 1994.
</TABLE>
43
<PAGE> 44
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.
AMERICAN PRECISION INDUSTRIES INC.
March 21, 1997 By: /s/ Kurt Wiedenhaupt
-------------------------------
Kurt Wiedenhaupt
President and Director
March 21, 1997 By: /s/ Bruce McH. Kirchner
------------------------------
Bruce McH. Kirchner
Chief Financial Officer
March 21, 1997 By: /s/ John M. Murray
------------------------------
John M. Murray
Vice President-Finance
and Treasurer
March 21, 1997 By: /s/ Thomas M. Huebsch
-------------------------------
Thomas M. Huebsch
Corporate Controller
44
<PAGE> 45
SIGNATURES
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 and on the dates indicated.
/s/ Robert J. Fierle February 25, 1997
- --------------------------------------- ---------------------
Robert J. Fierle Chairman of the Board Date
/s/ John M. Albertine February 25, 1997
- --------------------------------------- ---------------------
John M. Albertine Director Date
/s/ Bernard J. Kennedy February 25, 1997
- --------------------------------------- ---------------------
Bernard J. Kennedy Director Date
/s/ Douglas J. MacMaster February 25, 1997
- --------------------------------------- ---------------------
Douglas J. MacMaster Director Date
/s/ Klaus K. Oertel February 25, 1997
- --------------------------------------- ---------------------
Klaus K. Oertel Director Date
/s/ William P. Panny February 25, 1997
- --------------------------------------- ---------------------
William P. Panny Director Date
/s/ Victor Rice February 25, 1997
- --------------------------------------- ---------------------
Victor Rice Director Date
/s/ Jerre L. Stead February 25, 1997
- --------------------------------------- ---------------------
Jerre L. Stead Director Date
/s/ Kurt Wiedenhaupt February 25, 1997
- --------------------------------------- ---------------------
Kurt Wiedenhaupt Director Date
45
<PAGE> 46
* * * * *
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995:
With the exception of historical factual information, the matters and statements
discussed, made or incorporated by reference in this Annual Report on Form 10-K
constitute forward-looking statements based upon current expectations and are
discussed, made or incorporated by reference pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve certain assumptions, risks and uncertainties
that could cause actual results to differ materially from those included in or
contemplated by the statements. These assumptions, risks and uncertainties
include, but are not limited to, the possibility that the sales revenues are not
achieved, as well as the risks and uncertainties associated with general
economic cycles in either North America or Europe. The Registrant disclaims any
obligation to update any forward-looking statements as a result of developments
occurring after the filing of this Report.
* * * * *
EXHIBIT INDEX
-------------
11 Computation of Earnings Per Share
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedule
46
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
DECEMBER
------------------------
1996 1995 1994
-------------------------
<S> <C> <C> <C>
Amounts in thousands, except per share
Primary
Average common shares outstanding 7,190 7,090 7,062
Net earnings $6,525 $4,731 $3,431
Net earnings per common share outstanding (a) $ .91 $ .67 $ .49
Fully-diluted
Average common shares outstanding 7,190 7,090 (c)
Common stock equivalents (b) 415 240
------ ------
Fully-diluted average common shares outstanding 7,605 7,330
Net earnings $6,525 $4,731
Net earnings per common share-fully diluted $ .86 $ .65
<FN>
(a) Net earnings per common share outstanding is not materially affected by
common stock equivalents used in the determination of primary earnings
per share.
(b) Represents shares issuable upon the assumed exercise of outstanding stock
options determined under the "treasury stock" method.
(c) Outstanding stock options were anti-dilutive in 1994.
</TABLE>
47
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
API Heat Transfer Inc. (New York)
API Airtech Inc. (New York)
API Basco Inc. (New York)
API Ketema Inc. (Texas)
API Schmidt-Bretten GmbH (Germany)
Schmidt -Bretten GmbH (Germany)
API Motion Inc.
API Controls Inc. (New York)
API Deltran Inc. (New York)
API Deltran (St. Kitts) Ltd.
API Gettys Inc. (Wisconsin)
Harowe Servo Controls Inc. (Delaware)
Harowe Servo Controls (St. Kitts) Ltd.
API Electronic Components Inc. (New York)
API Delevan Inc. (New York)
API SMD Inc. (New York)
48
<PAGE> 1
EXHIBIT 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 2-85320, 33-31315, 33-61734, and 33-71839) of
American Precision Industries Inc. of our report dated February 17, 1997
appearing on page 16 of this Form 10-K.
PRICE WATERHOUSE LLP
Buffalo, New York
March 25, 1997
49
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000005657
<NAME> AMERICAN PRECISION INDUSTRIES INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1997
<PERIOD-END> JAN-03-1997
<CASH> 2,412,000
<SECURITIES> 0
<RECEIVABLES> 17,912,000
<ALLOWANCES> 487,000
<INVENTORY> 17,431,000
<CURRENT-ASSETS> 40,986,000
<PP&E> 48,305,000
<DEPRECIATION> 21,099,000
<TOTAL-ASSETS> 82,012,000
<CURRENT-LIABILITIES> 16,794,000
<BONDS> 0
<COMMON> 5,110,000
0
0
<OTHER-SE> 38,272,000
<TOTAL-LIABILITY-AND-EQUITY> 82,012,000
<SALES> 116,783,000
<TOTAL-REVENUES> 117,110,000
<CGS> 77,652,000
<TOTAL-COSTS> 107,116,000
<OTHER-EXPENSES> 28,169,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,295,000
<INCOME-PRETAX> 9,994,000
<INCOME-TAX> 3,469,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,525,000
<EPS-PRIMARY> $.91
<EPS-DILUTED> $.86
</TABLE>
