<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998
--------------
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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)
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 .
Number of shares of outstanding stock
on August 6, 1998 7,472,581
<PAGE> 2
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS
ENDED
------------------------------ ------------------------------
JUNE 30, JULY 4, JUNE 30, JULY 4,
(In thousands, except per share data) 1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $53,659 $39,572 $108,672 $75,415
COSTS AND EXPENSES
Cost of products sold 37,599 27,351 76,126 51,869
Selling and administrative 12,240 7,752 24,269 15,099
Research and product development 1,346 803 2,614 1,506
Interest and debt expense,
net of investment income 788 589 1,627 1,019
------------- ------------- ------------- -------------
51,973 36,495 104,636 69,493
------------- ------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES 1,686 3,077 4,036 5,922
INCOME TAXES 662 1,107 1,453 2,067
------------- ------------- ------------- -------------
NET EARNINGS $ 1,024 $ 1,970 2,583 $ 3,855
============= ============= ============= =============
EARNINGS PER COMMON SHARE
BASIC $0.14 $0.27 $0.35 $0.53
============= ============= ============= =============
DILUTED $0.11 $0.26 $0.28 $0.50
============= ============= ============= =============
Weighted Average Common Shares Outstanding
Basic 7,462 7,365 7,453 7,341
============= ============= ============= =============
Diluted 9,347 7,715 9,366 7,695
============= ============= ============= =============
</TABLE>
2
<PAGE> 3
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(Dollars in thousands) 1998 1997
-------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,973 $ 2,313
Accounts receivable less allowance for
doubtful accounts of $1,030 and $1,124 33,597 32,163
Inventories - net 40,201 38,510
Prepaid expenses 3,489 4,744
Deferred income taxes 4,044 4,338
-------------- -------------
TOTAL CURRENT ASSETS 85,304 82,068
INVESTMENTS - 686
OTHER ASSETS
Cost in excess of net assets acquired - net 19,260 19,853
Prepaid pension costs 1,663 1,669
Net cash value of life insurance 3,563 3,199
Other 2,388 2,251
-------------- -------------
26,874 26,972
DEFERRED INCOME TAXES 284 297
PROPERTY, PLANT AND EQUIPMENT
Land 3,340 3,409
Buildings and improvements 20,120 20,327
Machinery, equipment and furniture 54,277 51,427
Construction in process 4,778 2,689
-------------- -------------
82,515 77,852
Less accumulated depreciation 29,522 25,205
-------------- -------------
NET PROPERTY, PLANT AND EQUIPMENT 52,993 52,647
-------------- -------------
TOTAL ASSETS $ 165,455 $ 162,670
============== =============
</TABLE>
3
<PAGE> 4
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(Dollars in thousands) 1998 1997
------------ --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 13,123 $ 14,086
Accounts payable 14,762 15,792
Accrued compensation and payroll taxes 7,258 6,585
Other liabilities and accrued expenses 8,889 7,980
Current portion of long-term obligations 1,357 1,329
------------ --------------
TOTAL CURRENT LIABILITIES 45,389 45,772
DEFERRED INCOME TAXES 1,893 1,926
OTHER NONCURRENT LIABILITIES 3,025 3,488
LONG-TERM OBLIGATIONS, LESS CURRENT PORTION 36,805 34,884
SHAREHOLDERS' EQUITY
Series B seven percent (7%) convertible
preferred stock, par value $1.00 a share,
1,236,337 shares issued and outstanding 26,156 26,156
Common stock, par value $.66 2/3 a share:
Authorized - 30,000,000 shares
Issued - 7,846,740 and 7,812,215 shares 5,230 5,207
Additional paid-in capital 13,387 13,107
Retained earnings 38,155 35,572
Accumulated other comprehensive income (1,747) (604)
------------ --------------
81,181 79,438
Less cost of 374,262 treasury shares 2,838 2,838
------------ --------------
TOTAL SHAREHOLDERS' EQUITY 78,343 76,600
------------ --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 165,455 $ 162,670
============ ==============
</TABLE>
4
<PAGE> 5
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- ---------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------
June 30, July 4,
(Dollars in thousands) 1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,583 $ 3,855
Adjustments to reconcile net income to cash and
cash equivalents provided by operating activities:
Depreciation / Amortization 4,628 2,651
Gain (Loss) on sale of investments / fixed assets 17 (44)
Stock compensation programs (198) 62
Change in various allowance accounts (91) 13
Other 46 102
(Increase) Decrease in:
Accounts receivable (1,916) (3,834)
Inventory (2,128) (563)
Prepaid expenses 807 (976)
Prepaid income taxes 390 -
Deferred income tax assets 214 (33)
Other assets, net (836) (723)
Increase (Decrease) in:
Accounts payable (860) 895
Accrued expenses 1,687 (1,948)
Federal, state and foreign income taxes 309 26
Other noncurrent liabilities (280) (262)
------- -------
Net Cash Provided (Used) by Operating Activities 4,372 (779)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in acquisitions, net of cash & cash equivalents acquired (9) (5,927)
Costs related to acquisitions - (446)
Purchases of investments and marketable securities (15) (31)
Additions to property, plant and equipment (5,114) (4,333)
Proceeds from investments and marketable securities 702 2,758
------- -------
Net Cash (Used) by Investing Activities (4,436) (7,979)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options 303 835
Payment of long-term obligations, including current maturities (666) (651)
Dividends paid - (471)
Increase in long-term obligations 2,817 3,011
Increase (Decrease) in short-term borrowings (674) 5,506
------- -------
Net Cash Provided by Financing Activities 1,780 8,230
------- -------
Effect of Exchange Rate Changes (56) (57)
Net Increase (Decrease) in Cash and Cash Equivalents 1,660 (585)
Cash and Cash Equivalents at Beginning of Year 2,313 2,412
------- -------
Cash and Cash Equivalents at End of Year $ 3,973 $ 1,827
======= =======
</TABLE>
5
<PAGE> 6
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Second Quarter Ended June 30, 1998
------------------------------------------
Note A Consolidated Financial Statements
- ------ ---------------------------------
The Consolidated Balance Sheet as of June 30, 1998, and the
Consolidated Statement of Earnings and the Consolidated Statement
of Cash Flows for the periods ended June 30, 1998 and July 4,
1997 have been prepared by the Company without audit. In the
opinion of management, all adjustments necessary to present
fairly the financial position, results of operations, and changes
in cash flow at June 30, 1998 and for all periods presented have
been made. The Consolidated Balance Sheets include the assets,
liabilities and resulting goodwill of all subsidiaries. The
Consolidated Statements of Earnings and Cash Flows for the six
months ended July 4, 1997 include the results of API
Schmidt-Bretten from January 31, 1997, the date of acquisition.
The Consolidated Statements of Earnings and Cash Flows for the
six months ended June 30, 1998 include the results of Portescap
which was acquired on July 8, 1997.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with Generally
Accepted Accounting Principles have been condensed or omitted. It
is suggested these condensed consolidated financial statements be
read in conjunction with the financial statements and the notes
thereto included in the Company's 1997 Annual Report to
Shareholders.
Note B Inventories
- ------ -----------
The major classes of inventories are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1998 1997
---------- ----------
<S> <C> <C>
Finished goods $ 7,380 $ 9,133
Work in process 10,706 10,807
Raw materials 22,115 18,570
---------- ----------
$ 40,201 $ 38,510
========== ==========
</TABLE>
Had the cost of all inventories at June 30, 1998 and December 31,
1997 been determined by the FIFO method, these amounts would have
been greater by $1,052 for both periods.
6
<PAGE> 7
Note C Long-Term Obligations
- ------ ---------------------
<TABLE>
<CAPTION>
June 30, 1998
-----------------------------------------------------------
(In thousands) Outstanding Current Long-Term
------------------ ----------------- ----------------
<S> <C> <C> <C>
Industrial Revenue Bonds $ 11,727 $ 1,140 $ 10,587
Revolving Credit Debt 20,000 - 20,000
Supplemental Benefit Program 995 217 778
Portescap Debt- Mortgage
and Other Long-Term Loans 5,440 - 5,440
------------------ ----------------- ----------------
$ 38,162 $ 1,357 $ 36,805
================== ================= ================
</TABLE>
Note D Earnings Per Share
- ------ ------------------
All earnings per share amounts reflect the implementation of
Statement of Financial Accounting Standards No. 128 Earnings per
Share ("SFAS 128"). SFAS 128 established new standards for
computing and presenting earnings per share and requires all
prior period earnings per share data to be restated to conform
with the provisions of the statement. Basic earnings per share is
computed by dividing net earnings by the weighted average number
of shares outstanding during the period. Diluted earnings per
share is computed using the weighted average number of shares
determined for the basic computations plus the number of shares
of common stock that would be issued assuming all contingently
issuable shares having a dilutive effect on earnings per share
were outstanding for the period.
Note E Foreign Currency Translation
- ------ ----------------------------
The financial statements of subsidiaries outside the United
States are measured using the local currency as the functional
currency. Assets, including goodwill, and liabilities are
translated at the rates of exchange at the balance sheet date.
The resulting translation adjustments are included in equity
adjustment from foreign currency translation, a separate
component of shareholders' equity reported in Accumulated other
comprehensive income. Income and expense items are translated at
average monthly rates of exchange.
The Company utilizes forward foreign currency exchange contracts
to manage exposures resulting from fluctuations in foreign
currency exchange rates on monetary assets and liabilities
denominated in foreign currencies arising from its operations.
Gains and losses on foreign currency transactions are recorded in
income and are not material during the periods presented. The
Company does not engage in foreign currency speculation.
As of June 30, 1998 and December 31, 1997 foreign exchange
contracts outstanding were not significant.
7
<PAGE> 8
Note F Selected Segment Data
- ------ ---------------------
The Company conducts operations in two major industrial
classifications: Heat Transfer Technology and Motion
Technologies. Information about the net sales and operating
profit of these segments is set forth below:
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS
ENDED
---------------------------- ---------------------------
JUNE 30, JULY 4, JUNE 30, JULY 4,
(Dollars in thousands) 1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES:
Heat Transfer $ 23,015 $ 23,706 $ 46,871 $ 44,875
Motion 30,644 15,866 61,801 30,540
------------ ------------ ------------ ------------
$ 53,659 $ 39,572 $108,672 $ 75,415
============ ============ ============ ============
OPERATING PROFIT:
Heat Transfer $ 2,000 $ 2,274 $ 3,941 $ 4,359
Motion 1,613 2,142 3,860 3,976
------------ ------------ ------------ ------------
$ 3,613 4,416 7,801 8,335
GENERAL CORPORATE EXPENSE, NET (1,139) (750) (2,138) (1,394)
INTEREST AND DEBT EXPENSE (788) (589) (1,627) (1,019)
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES $ 1,686 $ 3,077 $ 4,036 $ 5,922
============ ============ ============ ============
</TABLE>
Note G Adoption of SFAS No. 130
- ------ ------------------------
In the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." Comprehensive income is defined as "the
change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner
sources". Under SFAS 130, the term "comprehensive income" is used
to describe the total net earnings plus other comprehensive
income which for the Company includes foreign currency
translation adjustments and minimum pension liability not yet
recognized as net periodic pension cost.
The adoption of SFAS 130 did not impact the calculation of net
earnings or earnings per share nor did it impact reported assets,
liabilities or total shareholders' equity. It did impact the
presentation of the components of shareholders' equity within the
balance sheet and will result in the presentation of the
components of comprehensive income within an annual financial
statement, which must be displayed with the same prominence as
other financial statements.
8
<PAGE> 9
The components of the Company's total comprehensive income (loss)
were:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
JUNE 30, JULY 4,
(In thousands) 1998 1997
------- -------
<S> <C> <C>
Net earnings $ 2,583 $ 3,855
Other Comprehensive Loss:
Foreign currency translation adjustments (1,669) (47)
Minimum pension liability, net of tax (78) (74)
------- -------
Total comprehensive income (loss) $ 836 $ 3,734
======= =======
</TABLE>
The foreign currency translation adjustments are not currently
adjusted for income taxes since they relate to investments which
are permanent in nature.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
SALES
API's consolidated sales for the second quarter and first six months of 1998
were $53.7 million and $108.7 million, increases of 36% and 44% respectively as
compared with the corresponding periods last year. The acquisition on July 8,
1997 of Portescap, a Swiss micro-motor manufacturer, was the primary cause of
the increases. Portescap added $14.4 million and $29.4 million respectively to
1998's second quarter and six months sales. Ownership of Schmidt-Bretten,
acquired January 31, 1997, for a full six months in 1998 added $1.7 million to
1998 six-month sales. The remaining $2.2 million increase in 1998 six months
sales reflects higher demand for Heat Transfer's air-cooled and plate and frame
products and for Motion's brakes, clutches, resolvers and magnetic components
offset by lower sales of shell and tube heat exchangers (order timing), Motion
Control products (semi-conductor industry weakness and delayed new product
introduction) and Gettys' motors (delayed product introduction).
COST OF PRODUCTS SOLD
Cost of products sold for the second quarter and first six months of 1998 were
$37.6 million and $76.1 million respectively as compared to $27.4 million and
$51.9 million for similar periods in 1997. The acquisition of Portescap added
$9.8 million to 1998 second quarter cost of products sold. The acquisition of
Portescap and Schmidt-Bretten added $21.2 million to the first half of 1998 cost
as compared with the same period in 1997. The remaining increase in 1998 six
months cost of products sold reflects additional sales volumes, higher costs for
air-cooled products due to first quarter 1998 manufacturing inefficiencies, and
costs to produce and sample new Motion Control and Gettys motor products.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative costs in the second quarter 1998 were $12.2 million,
a $4.5 million increase as compared to 1997's second quarter. The acquisition of
Portescap added $3.4 million to 1998 second quarter costs. Higher corporate
costs related to the oversight of international subsidiaries and installation of
an updated communications network as well as higher selling costs due to
increased sales and new product introductions account for the balance of the
increase in second quarter 1998 selling and administrative costs.
Year to date selling and administrative costs for 1998 are $24.3 million, up
$9.2 million as compared to the prior year. The Portescap and Schmidt-Bretten
acquisitions account for $7.2 million of the increase. The factors noted above
account for the remainder of the increase.
10
<PAGE> 11
RESEARCH AND PRODUCT DEVELOPMENT
Product development spending was $1.3 million in the second quarter of 1998 and
$2.6 million for the first six months as compared with $.8 million and $1.5
million for similar periods in 1997. The acquisition of Portescap and costs
incurred at this operation to expand product capabilities and technology account
for the increases.
INTEREST AND DEBT EXPENSE
Interest and Debt Expense, net of investment income, was $.8 million in the
second quarter of 1998 as compared with $.6 million last year. Higher interest
expense resulting from the debt acquired with the Portescap acquisition was
partially offset by a reduction in the debt incurred to acquire Schmidt-Bretten.
For the first half of 1998 compared with the similar period for 1997, interest
and debt expense increased principally as a result of interest on the debt
acquired with Portescap. Contributing to the increase was lower investment
income due to the expenditure in the first quarter of 1997 of the majority of
the proceeds from industrial revenue bonds issued in 1996 for the new air-cooled
product manufacturing facility.
TAXES
The second quarter and first six months 1998 consolidated tax rates were 39.3%
and 36.0%. This compares to 36.0% and 34.9% for the corresponding periods last
year. In February 1998, API estimated its 1998 tax rate to be 34.0% based upon
its expected pre-tax income attributable to U.S., Swiss and German sources.
Based upon six months results, a recalculation indicates a 1998 tax rate of
36.0%. The second quarter 1998 tax expense of $.7 million reflects a 36% tax
rate for second quarter earnings plus $.1 million of expense to bring the six
months 1998 tax expense to 36% of pre-tax income.
NET EARNINGS
Net Earnings for the second quarter and first six months of 1998 were $1.0
million and $2.6 million respectively as compared with $2.0 million and $3.9
million for the similar periods of 1997. The increased net income from the
acquisitions of Portescap and Schmidt-Bretten were more than offset by the
production issues related to air-cooled heat exchangers, costs related to the
introduction of new motor and drive products at API Motion, higher corporate
costs and a higher tax rate.
11
<PAGE> 12
SEGMENT DATA DISCUSSION
Heat Transfer
- -------------
Heat Transfer second quarter 1998 sales were $23.0 million, 3% ($.7 million)
below sales in the similar quarter last year. Operating profit was $2.0 million,
$.3 million or 12% below the second quarter of last year.
- - For the shell and tube product line, order timing caused second quarter
1998 sales to be 5% below ($.8 million) last year. Manufacturing cost
reductions resulted in a second quarter operating profit which was
approximately 8% higher than for the similar period of 1997.
- - For plate and frame heat exchangers, second quarter sales were 18% ($1.2
million) below second quarter 1997. Shipment timing and a delay in receipt
of a confirming letter of credit account for the lower comparative sales.
The lower margin dollars resulting from the delayed sales volume produced
second quarter 1998 operating profit in the plate and frame product line
substantially below second quarter 1997's operating profit.
- - For air-cooled products, second quarter 1998 sales were up 16% ($.8
million) as compared to the second quarter of 1997. Progress was made in
resolving manufacturing inefficiencies and the product line returned to
profitability in the second quarter. On a comparative basis, second quarter
1998 profits remained substantially below last year's reported result.
For the first six months of 1998, Heat Transfer sales of $46.9 million were 4.4%
above the similar period last year. Operating profit of $3.9 million was 9.6%
lower. Ownership in 1998 of Schmidt-Bretten, acquired January 31, 1997, for a
full six months was the primary cause of the sales increase. Higher costs of
air-cooled products due to manufacturing inefficiencies more than offset higher
profits from the increased sales and from manufacturing cost reductions in the
shell and tube product line.
Motion
- ------
1998 second quarter sales for Motion (including sales of magnetic components
previously reported as the Electronic Components segment) were $30.6 million, a
$14.8 million increase when compared to the second quarter 1997. Operating
profit was $1.6 million, down $.5 million when compared to second quarter 1997's
operating profit.
- - Portescap, the Swiss micro-motor business acquired on July 8, 1997,
accounted for the majority of the sales increase. Portescap's second
quarter operating profit exceeded $.6 million.
12
<PAGE> 13
During the second quarter 1998, Portescap implemented a new production
technology - Demand Flow(R)* Technology (DFT). Under DFT, manufacturing
responds to the flow of customer orders rather than operating under a
pre-set production schedule. The conversion to DFT resulted in an
unexpectedly large drop in April output. Recovery to more normal output
levels occurred in June. The low production rates in April and May
adversely impacted second quarter profitability at Portescap.
*Demand Flow(R) is a registered trademark of John Costanza Institute of
Technology, Inc.
At Portescap a three phase program to reduce annual costs by $4.5
million was begun soon after its acquisition by API. The third and most
significant phase of this program was implemented late in the second
quarter of 1998 following the DFT conversion. Additional costs for the
re-engineering of certain Portescap products have offset a majority of
the savings generated by the first two phases of Portescap's cost
reduction program. Re-engineered products will begin to be
commercialized during the second half of 1998.
- - The transition to a new generation of motors and controls continues to
adversely impact the quarterly financial performance of the Motion
group. The phase-out of old products, commercialization of new products
and a lower demand from semi-conductor industry customers resulted in a
decline in sales as compared to the second quarter of 1997. The sales
decline, plus added cost for development, design, testing and
introduction of the new products, resulted in significantly lower
second quarter 1998 operating profits when compared to the prior year.
- - Motion's brakes, clutches and resolver sales increased 21% ($1.6
million) in the second quarter 1998 when compared to the second quarter
of 1997. Price competition in the markets served by these products and
added marketing resources targeted to increasing sales to Europe offset
the profit from the higher sales. Cost reduction actions underway have
begun to improve margins.
- - The magnetic components product line showed a small (1%) sales increase
in the second quarter of 1998 as compared to the prior year. Cost
control produced a 10% increase in quarterly profit compared to the
prior year.
For the first six month period, sales of $61.8 million were up 102% compared
with the similar period of 1997. Portescap's acquisition on July 8, 1997 is the
primary cause for the increase. Higher demand for brakes, clutches, resolvers
and components offset by lower sales of controls and Gettys motors account for
the remainder of the increase. Operating profit for the first six months was
$3.9 million, $.1 million below operating profit for the first six months of
1997. The profit increase resulting from the addition of Portescap and the
higher sales volume mentioned above was offset by the lower volume and new
product introduction costs.
13
<PAGE> 14
FINANCIAL POSITION
Comparative information on the Company's liquidity position follows (000
omitted).
<TABLE>
<CAPTION>
June 30, July 4,
1998 1997
-------------------- --------------------
<S> <C> <C>
Net Working Capital $39,915 $22,066
Current Ratio 1.9 1.7
Cash and Cash Equivalents $ 3,973 $ 1,827
</TABLE>
The acquisition of Portescap on July 8, 1997 accounts for the majority of the
increased net working capital and cash.
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------------
June 30, July 4,
1998 1997
-------------------- --------------------
<S> <C> <C>
Cash Flow from Operations $ 4,372 $ (779)
Capital Expenditures $ 5,114 $ 4,333
</TABLE>
The Company has available short-term lines of credit which it utilizes to fund
current operations. On July 27,1998, the Company signed a commitment letter with
a commercial bank to replace its existing $20 million Revolving Credit Facility
with a 5-year $100 million Revolving Credit Facility. The primary purpose for
the increased line of credit is to provide short-term financing for future
acquisitions. A portion of the increased line of credit can also be used for
general corporate purposes and for the redemption of the Series B Convertible
Preferred Stock if it is not converted to common stock by the holder. The
Company expects to sign the loan agreement for the $100 million Revolving Credit
Facility during the third quarter of 1998.
YEAR 2000 INITIATIVES
In response to the Year 2000 issue, API initiated in mid-1997 a program to
evaluate the compliance status of its critical business systems. This evaluation
has been extended to include reviews of API's equipment, facilities and
products. Appropriate resources are being devoted to resolve identified Year
2000 issues in a timely fashion and the Company does not currently expect the
required modifications to have a material adverse impact on its financial
position, results or cash flows in the future.
In addition, the Company is communicating with its significant suppliers and
service providers regarding their Year 2000 status and compliance programs.
14
<PAGE> 15
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
Components of Consolidated Statement of Earnings
Expressed as a Percentage of Net Sales
------------------------------------------------
<TABLE>
<CAPTION>
Second Quarter Ended
--------------------
June 30, July 4,
1998 1997
------ ------
<S> <C> <C>
Net Sales 100.0 100.0
------ ------
Costs and Expenses
Cost of products sold 70.1 69.0
Selling and administrative 22.8 19.6
Research and product development 2.5 2.0
Interest and debt expense, net of investment income 1.5 1.6
------ ------
96.9 92.2
------ ------
Earnings before Income Taxes 3.1 7.8
Income Taxes 1.2 2.8
------ ------
Net Earnings 1.9 5.0
====== ======
Income Taxes as a percentage of
Earnings Before Income Taxes 39.3% 36.0%
====== ======
</TABLE>
15
<PAGE> 16
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
None
Item 2. Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
None
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
At the Annual Meeting of Shareholders held on April 24, 1998, the
following directors were elected for terms expiring at the annual
meeting in the year shown:
<TABLE>
<CAPTION>
Term Votes Votes
Expires For Withheld
----------------- ----------------- ----------------
<S> <C> <C> <C>
Class III
Holger Hjelm 2000 5,967,871 111,118
Class I
John M. Albertine 2001 5,967,918 111,071
Douglas J. MacMaster, Jr. 2001 5,967,783 111,206
Klaus K. Oertel 2001 5,967,971 111,018
</TABLE>
Bernard J. Kennedy and Kurt Wiedenhaupt continue to serve as
Class II directors for a term expiring at the annual meeting in
1999.
Victor A. Rice and Jerre L. Stead continue to serve as Class III
directors for a term expiring at the annual meeting in 2000.
16
<PAGE> 17
In addition, proposal items No. 2, 3 and 4 were approved as
follows:
<TABLE>
<CAPTION>
Votes Votes Broker
For Against Abstentions Non-Votes
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Proposal No. 2 5,096,061 828,578 98,156 1,594,797
--------------
Approval of the proposed
1998 Employee Stock
Option Plan
Proposal No. 3 4,795,163 1,105,235 122,455 1,594,739
--------------
Approval of the proposed
1997 Officers Stock
Option Plan
Proposal No. 4 4,662,003 1,228,868 132,581 1,594,140
--------------
Approval of amendments
and proposed amendments
to 1995 Directors Stock
Option Plan
</TABLE>
Also at the Annual Meeting, the selection of Price Waterhouse LLP
as auditors for the 1998 fiscal year was approved with 6,045,210
votes for, 16,915 votes against, and 18,864 votes withheld.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the index to exhibits immediately preceding the
exhibits filed with this report.
17
<PAGE> 18
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
* * * * * *
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Certain statements made in this report constitute forward-looking
statements based upon current expectations and are made 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 successful transition of the recent acquisitions into the
Company, the continued improvement of the Company's air-cooled heat
exchanger operations, customer acceptance of the new line of motors and
drives, the successful implementation of the Demand Flow(R) Technology
manufacturing system at Portescap, as well as the risks and
uncertainties associated with general economic cycles in North America,
Europe or the Far East. The Company expressly disclaims any obligation
to update any forward-looking statements as a result of developments
occurring after the date hereof.
* * * * * *
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN PRECISION INDUSTRIES INC.
/s/ Bruce McH. Kirchner
- ----------------------------------
Bruce McH. Kirchner
Chief Financial Officer
/s/ Mark E. Wood
- ----------------------------------
Mark E. Wood
Corporate Controller
August 12, 1998
18
<PAGE> 19
EXHIBIT INDEX
10A Amendment to the American Precision Industries Inc. 1998 Employees
Stock Option Plan
10B Amendment to the American Precision Industries Inc. 1995 Employees
Stock Option Plan
11 Computation of net income per share
27 Financial Data Schedule
19
<PAGE> 1
EXHIBIT 10A
-----------
Amendment No. 1
to the
AMERICAN PRECISION INDUSTRIES INC.
1998 EMPLOYEES STOCK OPTION PLAN
WHEREAS, American Precision Industries Inc. (the "Company")
adopted the American Precision Industries Inc. 1998 Employees Stock Option Plan
(the "Plan") effective February 20, 1998, and
WHEREAS, Section 8.3 of the Plan authorizes the Board of
Directors of the Company (the "Board") to amend the Plan in its discretion,
except to the extent approval of the Company's shareholders would be required by
law, and
WHEREAS, on April 24, 1998, the Board approved and authorized
the amendment to the Plan set out below,
NOW, THEREFORE, the Plan is amended as follows:
1. Section 3.3 of the Plan is renumbered as Section 3.4 and a
new Section 3.3 is added to the Plan to read as follows:
3.3 Delegation of Authority.
------------------------
(a) Except as provided in Section 3.3(b),
the Committee may delegate its authority and discretion under
Section 3.2, Article V, Article VI, and Section 8.2 of the
Plan to a second committee composed of the Chief Executive
Officer, the Chief Financial Officer, and the
Vice-President-Human Resources of the Company.
(b) The Committee shall not delegate its
authority and discretion with respect to matters relating to
Options granted or to be granted to officers of the Company or
a Subsidiary who are subject to Section 16 under the
Securities Exchange Act of 1934, as amended.
<PAGE> 2
2. This amendment is effective April 24, 1998.
IN WITNESS WHEREOF, this document is executed this 24th day
of July, 1998, pursuant to the authorization of the Board of Directors.
AMERICAN PRECISION INDUSTRIES INC.
By /s/ John M. Murray
---------------------------------
Vice President-Finance and Treasuer
2
<PAGE> 1
EXHIBIT 10B
-----------
Amendment No. 1
to the
AMERICAN PRECISION INDUSTRIES INC.
1995 EMPLOYEES STOCK OPTION PLAN
WHEREAS, American Precision Industries Inc. (the "Company")
adopted the American Precision Industries Inc. 1995 Employees Stock Option Plan
(the "Plan") effective December 16, 1994, and
WHEREAS, Section 2(e) of the Plan authorizes the Board of
Directors of the Company (the "Board") to amend the Plan in its discretion,
except to the extent approval of the Company's shareholders would be required by
law, and
WHEREAS, on April 24, 1998, the Board approved and authorized
the amendment to the Plan set out below,
NOW, THEREFORE, the Plan is amended as follows:
1. A new Article II(g) is added to the Plan to read as
follows:
(g)(i) Except as provided in Article
II(g)(ii), the Committee may delegate its authority and
discretion under Article II(c) and (d), Article III, and
Article V(b), (d)(ii), (e) of the Plan to a second
committee composed of the Chief Executive Officer, the
Chief Financial Officer, and the Vice-President-Human
Resources of the Company.
(ii) The Committee shall not delegate its
authority and discretion with respect to matters
relating to Options granted or to be granted to officers
of the Company or a Subsidiary who are subject to
Section 16 under the Securities Exchange Act of 1934, as
amended.
<PAGE> 2
2. This amendment is effective April 24, 1998.
IN WITNESS WHEREOF, this document is executed this 24th day
of July, 1998, pursuant to the authorization of the Board of Directors.
AMERICAN PRECISION INDUSTRIES INC.
By /s/ John M. Murray
--------------------------------
Vice President-Finance and Treasurer
2
<PAGE> 1
EXHIBIT 11
AMERICAN PRECISION INDUSTRIES INC.
COMPUTATION OF NET INCOME PER SHARE
(Shares and dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Second Quarter Six Months
Ended Ended
------------------------------ ------------------------------
June 30, July 4, June 30, July 4,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Income $ 1,024 $ 1,970 $ 2,583 $ 3,855
============= ============= ============= =============
Weighted average common shares outstanding
Basic 7,462 7,365 7,453 7,341
Incremental shares from assumed conversions:
Stock options and warrants 346 350 374 354
Series B convertible preferred stock 1,539 - 1,539 -
------------- ------------- ------------- -------------
Weighted average common shares outstanding
Diluted 9,347 7,715 9,366 7,695
============= ============= ============= =============
Earnings per share:
Basic $0.14 $0.27 $0.35 $0.53
Diluted $0.11 $0.26 $0.28 $0.50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,973
<SECURITIES> 0
<RECEIVABLES> 34,627
<ALLOWANCES> 1,030
<INVENTORY> 40,201
<CURRENT-ASSETS> 85,304
<PP&E> 82,515
<DEPRECIATION> 29,522
<TOTAL-ASSETS> 165,455
<CURRENT-LIABILITIES> 45,389
<BONDS> 36,805
0
26,156
<COMMON> 5,230
<OTHER-SE> 46,957
<TOTAL-LIABILITY-AND-EQUITY> 165,455
<SALES> 108,672
<TOTAL-REVENUES> 108,672
<CGS> 76,126
<TOTAL-COSTS> 76,126
<OTHER-EXPENSES> 2,614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,627
<INCOME-PRETAX> 4,036
<INCOME-TAX> 1,453
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,583
<EPS-PRIMARY> .35
<EPS-DILUTED> .28
</TABLE>
