<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 December 31, 1999
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)
Registrant's telephone number, including area code (716) 684-9700
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, 2000 was approximately $125,853,688.
The number of shares of Registrant's Common Stock outstanding on: March 21, 2000
was 6,913,122.
The Company's Information Statement pursuant to section 14 (f) of the Securities
Exchange Act of 1934 dated February 24, 2000 is incorporated by reference in
Part III of this Form 10-K.
Exhibit Index can be found on page 59 of this document.
<PAGE> 2
AMERICAN PRECISION INDUSTRIES INC.
FORM 10-K ANNUAL REPORT
For the year ended December 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
Part I 1 Business
a. Products and Marketing......................................... 3-5
b. Competition.................................................... 5
c. Backlog........................................................ 5
d. Suppliers...................................................... 6
e. Patents and Licenses........................................... 6
f. Customers...................................................... 6
g. Research and Development....................................... 6
h. Environmental Matters.......................................... 6-8
i. Employees...................................................... 8
j. Lines of Business and Industry Segment Information............. 9
k. Foreign Operations............................................. 9
2 Properties ............................................................ 10-11
3 Legal Proceedings 11
4 Submission of Matters to a Vote of Security Holders..................... 11
Part II 5 Market For Registrant's Common Equity and Related Stockholder Matters... 12
6 Selected Financial Data................................................. 13
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 14-17
7A Quantitative and Qualitative Disclosures About Market Risk.............. 18
8 Financial Statements and Supplementary Data............................. 19-46
9 Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure............................ 46
Part III 10 Directors and Executive Officers of the Registrant...................... 47
11 Executive Compensation.................................................. 47
12 Security Ownership of Certain Beneficial Owners
and Management.................................................... 47
13 Certain Relationships and Related Transactions.......................... 47
Part IV 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 48-56
Signatures ........................................................... 57-58
</TABLE>
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PART I
ITEM 1. BUSINESS
a. PRODUCTS AND MARKETING
The registrant and its subsidiaries (the "Company" or "API")
conduct operations in two major business segments, namely,
Motion Technologies and Heat Transfer.
The Company's objective is to consolidate a major share of
target market segments in electromechanical and electronic
motion control and industrial heat transfer. It further seeks to
diversify into select market segments and geographic markets
through internal growth and strategic acquisitions focused on
enhancing and complementing its existing technology base.
API MOTION INC
API Motion Inc., comprised of API CONTROLS, API DELTRAN, API
GETTYS, API HAROWE, API PORTESCAP, API POSITRAN, API ELMO, API
DELEVAN, AND API SMD, is a designer and manufacturer of high
performance precision motion control products and systems and
inductive devices.
API CONTROLS 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, winding equipment, positioning
tables and electronics assembly applications. Efforts continue
on the development of network communications capabilities for
its Intelligent Servo, Microstepper and Centennial drives.
API DELTRAN designs and manufactures high quality, precision
electromagnetic clutches, brakes and clutch/brake assemblies
used in sophisticated rotary motion control applications.
API GETTYS designs and manufactures precision servo and step
motors for a broad range of applications. Product families
include DC brush and AC servo motors and step motors with linear
actuating assemblies. The Turbo series of step and servomotors
are NEMA-standard, high performance designs available in several
frame, length and feedback variations.
API HAROWE designs and manufactures high performance resolvers,
encoders, and other specialty rotating electromagnetic
components for industrial, medical, military and commercial
aviation applications. Their Digital Resolver feedback package
provides an ideal feedback solution for rugged operations such
as welding, machine tools, and similar industrial applications.
API PORTESCAP participates in the market for high performance,
miniature motors. It develops, manufactures and markets ironless
DC motors, brushless DC motors, disc magnet stepper motors and
complementary reduction gearboxes, DC tachogenerators, and
magnetic encoders. API Portescap also offers a line of small
frame brushless DC motors that can be provided in over 3,600
different model variations, allowing it to respond to a wide
variety of markets such as medical instrumentation. In addition,
API Portescap markets higher power ironless-rotor motors, iron
core DC motors, and electronic drive circuits.
API Portescap's products are used by a number of business
sectors. Applications for these products typically include the
following features: (i) small size and light weight relative to
the power output; (ii) low inertia which allows the motor to
reach high speed in a very short time; (iii) low electrical
energy consumption; and (iv) reliable and long service lives.
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API POSITRAN offers high quality gearboxes designed and
manufactured in its ISO 9001 certified facility. The gearboxes
are available in offset, in-line, right angle and linear
geometric choices, utilizing three technology alternatives -
spur, bevel, and worm and wheel. The gearboxes provide an
efficient match of high-speed motors to lower speed loads, thus
enabling the drive and control electronics to operate more
efficiently. This results in less heat loss and smaller
actuators.
API ELMO, acquired February 1, 1999, develops and manufactures a
wide range of customer-specific single phase and three phase
induction and servo motors of rated power up to 25kW. Their
computerized database includes 3,000 different motor models.
Products are supplied to a number of leading industrial
companies and feature compliance with international standards
such as CSA and UL. Applications include use in industrial
washing machines, looms and knitting machines, ventilation
systems, medical and printing equipment, robotics and electric
fork lift trucks.
API DELEVAN and API SMD design, manufacture and market an
extensive line of quality printed circuit board through-hole and
surface-mount inductors, EMI/RFI and transformer components 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. Both of these operations have been ISO 9001
certified since 1994.
The markets served by API Delevan and API SMD are comprised of a
large number of OEM and distribution channels who serve
primarily the non-consumer electronics industry. API's markets
are the higher-grade industrial applications such as avionics,
aerospace and medical equipment. Sales growth is oriented toward
specialty niche markets and custom components to augment its
large offering of standard catalog products.
API HEAT TRANSFER INC.
API Heat Transfer Inc., which is comprised of API BASCO, API
AIRTECH, API KETEMA, and 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, food and dairy, and many of their support
industries. Products range from small standard units to large
custom-designed heat exchangers, and include industrial and
portable compressors, refrigeration equipment, turbines, and
applications in the food and beverage and chemical processing
markets. API Basco, API Airtech, and API Schmidt-Bretten GmbH
are ISO 9001 certified, an important element in the Company's
plans for international growth.
API BASCO manufactures a full line of standard and custom shell
and tube heat exchangers, plate fin intercoolers and
aftercoolers, serving the compressor, air separation, chemical,
petrochemical, and general industrial markets.
API AIRTECH manufactures a complete line of air-cooled aluminum
heat exchangers including bar and plate, fan cooled, and
refrigerated exchangers. The end markets include compressors,
machine tools, turbo-generators, construction equipment, and
truck and bus manufacturers. Operations are based in a modern
82,000 square foot facility which is designed to accommodate
future growth needs.
API KETEMA has a strong position in both the general industrial
and refrigeration heat transfer marketplace. This division
manufactures shell and tube heat exchangers, chiller barrels,
condensers, flooded evaporators and industrial packaged
chillers.
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API SCHMIDT-BRETTEN, with principal facilities located in
Germany, designs and manufactures gasketed, welded, and brazed
plate exchangers for the chemical and food markets. The
plate-type heat exchanger products offer flexible design, high
efficiencies and easy disassembly for cleaning or plate
replacement. API Schmidt-Bretten also provides plate products to
the U.S. market. In addition, its marketing organization allows
API Heat Transfer to pursue the sale of its U.S. manufactured
products into Europe.
EURO CONVERSION
On January 1, 1999, certain member countries of the European
Union established fixed conversion rates between their existing
currencies and the European Union's common currency (Euro). In
1999 these countries began using the Euro as their single
currency, while still continuing to use their own notes and
coins for cash transactions. Bank notes and coins denominated in
Euros are expected to be put in circulation and local notes and
coins will cease to be legal tender during 2002.
API conducts a material amount of business in these countries.
Introduction of the Euro has not resulted in any material
adverse impact on the Company's financial condition, liquidity
or results of operations.
b. COMPETITION
In each of its segments the Company faces substantial
competition from a number of companies, some of which have
offshore manufacturing facilities. Some of these competitors are
larger and have greater resources. The Company continues to be
faced with strong global competition and cost reduction
pressures.
The Company relies primarily on the depth of its engineering
expertise in motion control and heat transfer technologies and
on the quality of its extensive products and services 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 high quality micro-miniature
electronic coil, electro-magnetic components, and compressor
cooler markets.
c. BACKLOG
The Company's backlog of unfilled orders believed to be firm at
December 31, 1999 was approximately $73,396,000. Most 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 two business segments:
<TABLE>
<CAPTION>
(In thousands) API Heat
API Motion Transfer Total
---------- -------- -----
<S> <C> <C> <C>
1999 $52,472 $20,924 $73,396
1998 $51,274 $24,233 $75,507
</TABLE>
The increase in backlog in the Motion Technologies segment is
principally due to the acquisition of API Elmo offset by
decreases in OEM components caused by customer trends of
converting to "just in time" delivery requirements. Backlog has
decreased for the Heat Transfer segment primarily due to
weakness in the U.S. industrial compressor market and reductions
in orders for shell and tube heat exchangers.
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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. The Company has
initiated actions to establish primary and second-tier preferred
suppliers for significant raw materials. These supply chain
management initiatives has resulted in closer alliances with
suppliers with a focus on cost reductions and improved service
levels.
e. PATENTS AND LICENSES
The Company has patents in multiple jurisdictions covering the
design of certain API Portescap products including, in
particular, the disc magnet motor, whose patent expires on July
21, 2004. Also API Portescap's escap(R) tradename is registered
in multiple jurisdictions. The Company recently registered the
tradename Turbo Servo, and the tradename Turbo Stepper for its
new API Gettys' motor products.
The Company has patents in multiple jurisdictions covering the
design of its API Elmo synchronous servomotors. Expiration of
these patents occurs in 2008.
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 API
Delevan. None of these patents expire prior to the year 2006.
The Company was issued a patent in December 1998 covering heat
exchangers utilized in compressed air drying systems. This
patent expires in 2017.
The Company has numerous other patents and trademarks. No single
patent or trademark or group of patents or trademarks is
material to the operations of any industry segment or to the
business as a whole.
f. CUSTOMERS
During 1999, 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 $5,174,000,
$4,917,000, and $3,667,000, in 1999, 1998, and 1997,
respectively.
h. ENVIRONMENTAL MATTERS
- In April 1998, API Harowe Inc. ("Harowe") was
notified by the owner of the real property in West
Chester, Pennsylvania, at which Harowe leases its
facility, that there was alleged contamination at the
facility. The owner claims that Harowe is responsible
for the remediation cost and other damages arising
out of that alleged contamination. The owner, on its
own initiative, undertook certain soil remediation
activities at its own expense.
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Harowe has retained an environmental consultant to assist it
in determining what, if any, liability Harowe has with
respect to the alleged contamination. In its Supplemental
Site Characterization Report dated November 17, 1998, the
consultant concluded that (1) although select volatile
organic compounds ("VOCs") were detected in soil samples,
none of these VOCs exceeds the limits set by the
Pennsylvania Department of Environmental Protection
("PADEP"), and (2) ground water samples found five VOCs at
concentration levels in excess of the PADEP's limits. The
consultant's report concludes by stating that although the
exact sources of these VOCs have not been identified, it is
possible that they could be due to historical releases from
underground storage tanks on the site or to past or present
releases from the sanitary sewer line.
On January 26, 1999, the consultant submitted a proposal to
conduct a remedial investigation and risk assessment of the
site for an estimated cost of $76,050. The estimated cost
does not include any of the costs for remedial action
activities, attainment monitoring, or activities associated
with entering into a formal process of receiving liability
protection from the PADEP's land recycling program.
In a letter dated February 2, 1999, the owner's attorney
advised Harowe that he did not believe that the consultant's
proposed timetable was aggressive enough to move the process
forward expeditiously, and that he did not agree with the
consultant's suggestion to hold off contacting PADEP until
all investigatory work was complete. The owner's attorney
also demanded that Harowe reimburse the owner for all of its
past costs, including those costs incurred to assess and
remediate contaminated soils, which amounted to $77,360
through 1998. He also suggested that Harowe would be liable
for any damages incurred by the owner if the owner was
unable to close on its planned sale of the site due to the
presence of contamination in either the soil or ground
water.
During 1999, the consultant has expanded its proposed scope
of work for the Remedial Investigation and Risk Assessment
("RI/RA") to include the installation of additional deep
wells and off-site wells to evaluate further the possibility
that the deep groundwater table and off-site groundwater
have been impacted by contamination at the Harowe leased
property. In addition, a well survey will be performed to
determine whether there are any off-site wells in use which
may be impacted by contamination at the site. These
additional activities are expected to increase the cost of
the RI/RA work by approximately $70,000.
A video inspection of the on-site sanitary sewer line was
performed on October 26, 1999. That inspection revealed that
some fittings on the line were separated or eroded to the
extent that water could be observed leaking through them.
Thus, historical leakage from this line could possibly have
been a contributing source of the groundwater impacts found
at the site.
Harowe intends to proceed along the lines suggested in the
consultant's proposal, without admitting responsibility for
all of the contamination found on the site. The Company has
also made a demand on Hawker Siddeley Holdings Inc., from
whom the Company purchased Harowe, to indemnify and hold the
Company harmless from any damages arising out of this
situation.
- In 1987, Transicoil Inc., which was formerly owned by
Portescap U.S. Inc., a subsidiary of the Company acquired in
1997, was notified that the North Penn site in Pennsylvania
on which its operations had been located was nominated for
inclusion on the U.S. Environmental Protection Agency's
("EPA") National Priorities List of hazardous waste sites
pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"). In 1988,
Portescap U.S. Inc., as well as Transicoil, Eagle-Picher
Industries, Inc. (the owner of Transicoil at that time),
other prior owners and the then owner of the
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North Penn Site, were named by the EPA as "potentially
responsible parties" ("PRPs") under CERCLA which imposes
joint and several liability on each PRP for the cleanup of
the site. Portescap U.S. Inc. denied liability and denied
that it was a proper PRP. An investigation of the North Penn
Site, performed by independent consultants at the request of
the EPA, revealed the presence of contamination. In 1989,
Eagle-Picher, Transicoil and the EPA entered into an
administrative consent order, pursuant to which Eagle-Picher
and Transicoil agreed to prepare a Remedial Investigation
Report and a Feasibility Study of the North Penn Site.
However, in 1991, prior to completion of either the Remedial
Investigation Report or the Feasibility Study, Eagle-Picher
and Transicoil filed for bankruptcy and were subsequently
discharged from any liability for environmental
contamination at the North Penn Site. In mid-1995, Portescap
U.S. Inc. agreed in principle with one of the prior owners
and operators of the North Penn Site to pay, on an equal
shares basis, up to $15,000 toward installation of drinking
water filtration systems at several homes in the vicinity of
the North Penn Site. In August 1995, the EPA issued a
unilateral order requiring certain prior and present owners
and operators of the North Penn Site to undertake various
remedial actions. The EPA, however, did not name Portescap
U.S. Inc. as a party to that order, although it subsequently
served Portescap U.S. Inc. with a formal request for
information concerning its past relationship with Transicoil
and the North Penn Site. In October 1995, Portescap U.S.
Inc. received notice of an indemnification claim asserted
against it by a prior owner of the North Penn Site.
Portescap U.S. Inc. informed the entity that asserted the
indemnification claim that it denies liability under that
claim and that it will vigorously defend itself against that
claim.
In early 1996 the EPA released the Remedial Investigation
Report which indicated the presence and nature of
contamination at the North Penn Site. The Feasibility Study
was concluded in early 1997, and in July 1997 the EPA
released its proposed Remedial Action Plan in which it
recommends two alternatives for remediating the
environmental problems associated with the North Penn Site,
which involve a combination of ground water treatment and
the connection of residents around the North Penn Site to a
public water supply. The EPA estimates that the ground water
treatment alternative would cost approximately $830,000 and
the proposal to connect residents to a public water supply
would cost approximately $2,340,000. The EPA has held a
public hearing on these matters and will make a final
determination as to which alternative or combination of
alternatives, if any, to adopt. Once the EPA selects a
remediation plan, it is likely to assert a claim against the
PRPs named in its August 1995 unilateral order to recover
the costs of remediation. Those PRPs may assert a claim
against Portescap U.S. Inc. for contribution. In that event,
Portescap intends to deny any liability, and to assert a
counterclaim for contribution against the other PRPs.
However, there is no assurance that it will prevail on
either its denial of liability or its claim for
contribution.
Inter Scan Holding Ltd., from whom API acquired Portescap,
has agreed to indemnify API, Portescap and its subsidiaries
for any losses, as defined, which arise out of any violation
of environmental laws or disposal of hazardous waste at the
North Penn Site up to a maximum of 2,000,000 CHF
(approximately $1,250,000). Indemnification on any such
claims asserted after October 8, 1998 are limited to
1,000,000 CHF (approximately $625,000).
i. EMPLOYEES
At December 31, 1999, 2,178 persons were employed by the
Company.
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j. LINES OF BUSINESS AND INDUSTRY SEGMENT INFORMATION
API's manufacturing operations in 1999 were carried on through
subsidiaries. Operations are classified into two industry
segments based upon the characteristics of manufacturing
processes and the nature of markets served. The manufacturing
units which currently comprise the segments and their
principal products are as follows:
<TABLE>
<CAPTION>
API MOTION:
<S> <C>
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 encoders
API Harowe (St. Kitts) Resolvers and brushless DC motors
API Portescap DC, brushless DC and disc magnet stepper motors
API Positran Gearboxes and actuators
API Elmo Specialty electric induction and servo motors
API Delevan Axial-leaded inductors
API SMD Surface mounted inductors
API HEAT TRANSFER:
API Basco Shell and tube heat exchangers
API Airtech Air cooled aluminum heat exchangers
API Ketema Packaged chillers, refrigeration condensers, and shell
and tube heat exchangers
API Schmidt-Bretten (Germany) Plate heat exchangers, evaporators and thermal
processing systems
API Schmidt-Bretten (U.S.) Plate heat exchangers, evaporators and thermal
processing systems
</TABLE>
Amounts of revenue from sales to unaffiliated customers,
operating profit or loss, and identifiable assets for the three
years ended December 31, 1999, are included in Note L of the
notes to consolidated financial statements included in this
report.
k. FOREIGN OPERATIONS
Export sales from North America are primarily to Europe and to
other countries within North America. Export sales from Europe
are principally to countries within their geographic segment.
These sales comprise approximately 34%, 31%, and 29%, of
consolidated sales for 1999, 1998, and 1997, 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. Additional
information relating to geographic operating data is included in
Note L of the notes to consolidated financial statements
included in this report.
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ITEM 2. PROPERTIES
The location of API's manufacturing facilities and their
approximate size in terms of floor area are as follows:
<TABLE>
<CAPTION>
Floor Area
Location (Sq. Ft.)
-------- ---------
<S> <C>
API MOTION:
API Controls and API Deltran, 43,700
Amherst, New York (Hazelwood Drive)
API Gettys, Racine Wisconsin 88,000
(North Green Bay Road)
API Harowe and API Portescap U.S., 34,500
West Chester, Pennsylvania
(Westtown Road)
API Harowe (St. Kitts) Ltd. and 11,500
API Deltran (St. Kitts.) Ltd., St. Kitts, West Indies
(Bourkes Road)
API Portescap, La Chaux-de-Fonds, Switzerland 126,500
(157, rue Jardiniere) and
Marly, Switzerland (Route de Chesalles 1) 20,800
API Positran, Ringwood, England 28,000
(Headlands Business Park)
API Elmo AB, Flen Sweden 152,000
(Industrivagen 7)
API Delevan, East Aurora, New York 50,000
(Quaker Road)
API SMD, Arcade, New York 23,500
(North Street)
API HEAT TRANSFER:
API Basco, Buffalo, New York 115,600
(Walden Avenue)
API Airtech and API Schmidt-Bretten, 82,000
Arcade, New York (North Street)
API Ketema, Grand Prairie, Texas 150,000
(West Marshall Drive)
API Schmidt-Bretten GmbH, Bretten, Germany 100,000
(Pforzheim Strasse)
</TABLE>
Of the facilities listed above, the API Gettys, API Portescap,
API Positran, API Elmo, API Delevan, API SMD, API Basco, API
Airtech, and API Ketema facilities are owned by API.
The facilities occupied by API Airtech and API Schmidt-Bretten,
API Ketema, and API SMD constitute collateral for three
industrial revenue bond financings. The land and buildings owned
by API Portescap in Switzerland, API Positran in England, and
API Elmo in Sweden have been pledged as security for certain
mortgage loans.
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The facilities leased by API are as follows:
<TABLE>
<CAPTION>
Approximate
Annual Leased
Facility Location Rental Until
----------------- ------ -----
<S> <C> <C>
Bourkes Road (API Harowe (St. Kitts) Ltd. and $14,000 2003
API Deltran (St. Kitts) Ltd.)
Hazelwood Drive (API Controls and API Deltran) $157,000 2002
Westtown Road (API Harowe) $205,000 2000/2001
Pforzheim Strasse (API Schmidt-Bretten GmbH) $198,000 2001
</TABLE>
In addition, subsidiaries of API Portescap lease office space in
Pforzheim (Germany), Creteil (France), Tokyo (Japan), and
Stockholm (Sweden). A sales subsidiary of API Schmidt-Bretten
GmbH leases office space in Leeuwarden, the Netherlands. The
approximate aggregate annual rentals for these sales offices is
$.2 million. The lease terms range from 2000 to 2003, and the
aggregate square footage is approximately 15,500.
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
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
COMMON STOCK PRICES
American Precision Industries common stock is listed on the New
York Stock Exchange and 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>
Quarterly Stock Price Data
----------------------------------------------------------
Fiscal Year 1999: High Low
-----------------
<S> <C> <C>
First Quarter $11.00 $ 8.75
Second Quarter $12.63 $ 9.25
Third Quarter $11.00 $ 9.19
Fourth Quarter $11.13 $ 8.25
Fiscal Year 1998:
First Quarter $21.00 $17.00
Second Quarter $19.50 $14.38
Third Quarter $16.56 $11.00
Fourth Quarter $14.50 $ 9.50
</TABLE>
As of December 31, 1999, there were 812 shareholders of record.
Effective in the first quarter of 1997, the Company decided to
eliminate its quarterly cash dividend and to retain the cash for
expansion and acquisitions.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations
Net sales $236,333 $216,615 $184,070 $116,783 $ 82,403
Gross profit $ 68,643 $ 66,301 $ 56,863 $ 39,131 $ 27,114
Earnings before Interest, Taxes,
Depreciation and Amortization $ 28,105 $ 23,508 $ 22,534 $ 15,074 $ 10,053
Interest and debt expense,
net of investment (income) $ 3,839 $ 3,356 $ 2,753 $ 968 $ (19)
Depreciation and amortization $ 11,882 $ 9,411 $ 7,434 $ 3,785 $ 2,594
Net earnings available to
common shareholders $ 6,309 $ 6,358 $ 8,291 $ 6,525 $ 4,731
Capital expenditures $ 9,571 $ 9,285 $ 8,737 $ 8,319 $ 4,585
-------- -------- -------- -------- --------
Balance Sheet
Working capital $ 41,314 $ 43,395 $ 36,296 $ 24,192 $ 18,463
Current ratio 1.9 2.0 1.8 2.4 2.4
Property, plant and equipment, net $ 65,388 $ 53,660 $ 52,647 $ 27,206 $ 12,269
Total assets $188,370 $169,265 $162,670 $ 82,012 $ 57,791
Long-term liabilities $ 58,962 $ 40,559 $ 40,298 $ 24,674 $ 10,292
Shareholders' equity $ 81,090 $ 84,468 $ 76,600 $ 40,544 $ 34,347
-------- -------- -------- -------- --------
Ratio Analysis
Gross profit (% of net sales) 29.0% 30.6% 30.9% 33.5% 32.9%
Earnings before income taxes
(% of net sales) 5.2% 4.9% 6.6% 8.6% 8.8%
Net earnings available to common
shareholders (% of net sales) 2.7% 2.9% 4.5% 5.6% 5.7%
Long-term liabilities to total
capitalization 42.1% 32.4% 34.5% 37.8% 23.1%
Interest coverage ratio 4.2 4.1 5.2 8.7 31.3
-------- -------- -------- -------- --------
Per Common Share
Market price range:
High $ 12.63 $ 21.00 $ 26.00 $ 20.25 $ 14.75
Low $ 8.25 $ 9.50 $ 16.25 $ 10.75 $ 7.63
Year-end $ 8.50 $ 10.31 $ 20.81 $ 20.25 $ 11.13
Net earnings per weighted
average common share:
- basic $ 0.86 $ 0.85 $ 1.12 $ 0.91 $ 0.67
- diluted $ 0.85 $ 0.68 $ 0.97 $ 0.88 $ 0.65
Shareholders' equity per
common share $ 7.97 $ 7.80 $ 6.78 $ 5.56 $ 4.82
-------- -------- -------- -------- --------
Other
Number of shares outstanding
at year end 6,889 7,479 7,438 7,292 7,128
Weighted average shares
outstanding:
- basic 7,290 7,464 7,381 7,190 7,090
- diluted 7,416 9,378 8,537 7,452 7,262
Effective tax rate 34.1% 40.5% 32.0% 34.7% 34.5%
Shareholders 812 862 948 1,015 1,076
Employees 2,178 1,976 2,043 1,309 1,033
</TABLE>
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL REVIEW - OPERATIONS
NET SALES
Consolidated net sales in 1999 were $236.3 million, compared with
$216.6 million in 1998, an increase of $19.7 million or 9.1%. Of the
increase, $27.8 million was due to the acquisition on February 1, 1999
of Elmo Industrier AB ("Elmo"), a Swedish motor manufacturer.
Offsetting this increase were sales decreases of API Motion's brake,
clutch, control and motor products and API Heat Transfer's shell and
tube heat exchangers. These declines were the result of weak market
conditions in the semi-conductor, factory and office automation,
medical instruments and compressor industries.
In 1998, consolidated net sales were $216.6 million, an increase of
17.7% as compared with 1997 net sales. The ownership of API Portescap
for a full 12 months in 1998, higher sales of API Motion's brakes,
clutches, feedback and components products and of API Heat Transfer's
air-cooled and plate and frame products accounted for the sales
increase.
COST OF PRODUCTS SOLD
The cost of products sold in 1999 was $167.7 million, compared with
$150.3 million in 1998, an increase of $17.4 million, or 11.6%. Cost of
products sold which resulted from the acquisition of Elmo was not fully
offset by the lower cost of products sold resulting from lower sales
volume and cost reduction actions at API's other businesses.
In 1998, cost of products sold was $150.3 million, a $23.1 million
increase as compared with 1997. The majority of the increase resulted
from the ownership for a full 12 months in 1998 of API Schmidt-Bretten
(acquired January 30, 1997) and API Portescap (acquired July 8, 1997).
Also impacting 1998 cost of products sold were higher costs due to
operational inefficiencies at API Heat Transfer's air-cooled products
facility, product introduction costs at API Motion offset by a $1.2
million reduction in API Portescap's inventory obsolescence reserve.
SELLING AND ADMINISTRATIVE
Selling and administrative expenses were $47.3 million in 1999, an
amount equal to 1998 expenses. Selling cost increases resulting from
the acquisition on February 1, 1999 of Elmo were offset by lower
selling expense at other units due to lower sales volume and cost
reductions.
Selling and administrative expenses in 1998 were $47.3 million as
compared with $38.0 million in 1997. The majority of the increase was
due to the ownership for a full 12 months in 1998 of API
Schmidt-Bretten and API Portescap. Product introduction costs at API
Motion plus higher sales volumes accounted for the balance of the
increase.
14
<PAGE> 15
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses were $5.2 million in 1999,
compared with $4.9 million in the prior year. Product development costs
at Elmo accounted for the increase.
Research and product development costs in 1998 increased to $4.9
million from $3.7 million in 1997. Ownership of API Schmidt-Bretten and
API Portescap for a full 12 months in 1998 and higher product
development costs for air-cooled heat exchangers, turbo motors, brakes
and clutches accounted for the increase.
INTEREST AND DEBT EXPENSE, NET OF INVESTMENT INCOME
Interest and debt expense in 1999 was $3.8 million, compared with $3.4
million in 1998. Interest costs for debt related to the acquisition of
Elmo more than offset the lower interest cost of non-Elmo related debt
resulting from principal repayments.
Interest and debt expense in 1998 was $3.4 million as compared with
$2.8 million in 1997. The ownership of API Portescap for a full year in
1998, costs associated with the establishment of a $100 million,
multi-currency revolving credit facility in August 1998 and lower
investment income was only partially offset by lower interest rates in
Switzerland and the U.S.
INCOME TAXES
Income taxes in 1999 were $4.2 million, a rate of 34.1% of earnings
before income taxes. The tax rate reflects the geographic mix of
earnings and the Swiss tax holiday granted by the Neuchatel Canton in
December 1998 and the Swiss federal government in early 1999. Income
tax expense for 1999 includes a $.2 million charge resulting primarily
from the write-down of net deferred tax assets associated with
operating loss carryforwards on API Portescap's balance sheet at
acquisition which have a lower future value due to the granting in 1999
of the Swiss federal tax holiday.
Income taxes in 1998 were $4.3 million, a rate of 40.5% of earnings
before income taxes. This included $.6 million of tax expense resulting
from the granting of a 10-year tax holiday for API Portescap by the
Swiss canton of Neuchatel. The $.6 million charge reflected in the 1998
tax provision resulted primarily from the write-down of net deferred
tax assets associated with operating loss carryforwards recorded on the
balance sheet at API Portescap's acquisition which have a lower future
value as a result of the Swiss cantonal tax holiday.
Excluding the unusual charges, API's 1999 consolidated tax rate was
32.3% as compared with 35.0% in 1998 and 32.0% in 1997. The 1999
decrease in rate from 1998 reflects changes in API's geographical mix
of earnings. Non-recurring adjustments to pre-1997 provisions following
the completion of audits also lowered the 1998 and 1997 rates.
NET EARNINGS
Net earnings in 1999 were $8.1 million, compared with $6.4 million in
1998. The acquisition of Elmo and cost reductions at other units offset
the impact of lower sales volume due to the weak market conditions
affecting major market segments served by API Motion and API Heat
Transfer.
15
<PAGE> 16
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
On January 1, 1999, a dividend began to accrue on API's 7% Convertible
Preferred Stock. The 1999 accrued preferred dividend was approximately
$1.8 million. 1999 net earnings available to common shareholders was
thus $6.3 million as compared with $6.4 million in 1998 (when the
preferred stock was dividend free).
BUSINESS SEGMENT DISCUSSION
API MOTION: 1999 sales were $145.7 million, an increase of $24.2
million when compared with 1998. The February acquisition of Elmo
Industrier AB, a Swedish motor manufacturer, added $27.8 million to
1999 sales. Offsetting this increase were lower sales due to weak
market conditions in the semiconductor, factory and office automation
and medical instruments markets and the impact of a strong U.S. dollar
when translating the sales of API Motion's Swiss subsidiary.
API Motion's 1999 operating profit was $12.5 million, a 31.1% increase
when compared with $9.5 million in 1998. Lower product introduction and
development costs, the acquisition of Elmo and cost reduction programs
accounted for the increase.
API HEAT TRANSFER: In 1999, net sales were $90.6 million compared with
$95.1 million in 1998. The 4.7% decrease was the result of weak market
conditions in the U.S. compressor industry resulting in lower demand
for shell and tube products and the impact of a stronger U.S. dollar
when translating the sales of API Heat Transfer's German subsidiary.
These factors more than offset growth in demand for API Heat Transfer's
plate and frame products.
API Heat Transfer's 1999 operating profit was $8.7 million, a 3.5%
decline when compared with $9.1 million in 1998. The reduced operating
profit due to the $4.5 million lower sales was not fully offset by cost
reductions.
YEAR 2000 INITIATIVES
As previously reported, over the past several years the Company has
developed and implemented a plan to address the anticipated impacts of
the so-called Year 2000 ("Y2K") problem on our information technology
(IT) systems and on non-IT systems involving embedded chip
technologies. This plan also included the survey of selected third
parties to determine the status of their Year 2000 compliance programs.
In addition, we developed contingency plans specifying what the Company
would do if we or important third parties experienced disruptions to
critical business activities as a result of the Year 2000 problem.
API's Year 2000 plan was completed in all material respects prior to
the anticipated Year 2000 failure dates. As of March 21, 2000, the
Company has not experienced any materially important business
disruptions or system failures as a result of Year 2000 issues, nor is
it aware of any Year 2000 issues that have impacted its customers,
suppliers or other significant third parties to an extent significant
to the Company. However, Year 2000 compliance has many elements and
potential consequences, some of which may not be foreseeable or may be
realized in future periods. Consequently, there can be no assurance
that unforeseen circumstances may not arise, or that the Company will
not in the future identify equipment or systems which are not Year 2000
compliant.
16
<PAGE> 17
As of December 31, 1999, costs for U.S. operations for Y2K related
hardware and software upgrades were approximately $.4 million. The 1999
cost to complete the implementation of information systems at
Schmidt-Bretten Germany was approximately $.2 million, while the 1999
compliance cost for Elmo was approximately $.1 million. Costs
specifically related to Y2K compliance at Portescap approximated $.5
million.
FINANCIAL POSITION
The Company's liquidity is primarily generated from operations. In
addition, short-term lines of credit totaling $9.5 million and
revolving credit of $62.9 million were available at December 31, 1999.
On August 31, 1998, the Company signed an agreement with Marine Midland
Bank (now known as HSBC Bank) and Fleet National Bank for a $100
million, multi-currency, five-year unsecured Revolving Credit Facility.
This replaced the Company's $20 million Revolving Credit Facility.
Twenty-five million dollars of the new facility is available for
general corporate purposes. The balance is available for potential
acquisitions. The facility is guaranteed by the Company's U.S.
subsidiaries. At December 31, 1999, borrowings under the Revolving
Credit Facility were $37.0 million, as compared to $18.3 million at
December 31, 1998.
In February 1999, the Company's Directors approved a program that
authorized the repurchase from time to time of up to $5 million of its
common stock. The authorization was increased in November 1999 by an
additional $5 million. As of December 31, 1999, the Company had
repurchased 627,300 shares at a cost of $6.5 million under these
authorizations.
Information on the Company's liquidity position for the past three
years is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
---------------------- ---- ---- ----
<S> <C> <C> <C>
Net working capital $41,314 $43,395 $36,296
Current ratio 1.9 2.0 1.8
Cash flow from operating activities $21,983 $11,178 $6,336
Cash and cash equivalents $4,227 $3,856 $2,313
Capital expenditures $9,571 $9,285 $8,737
</TABLE>
The lower 1999 net working capital as compared with 1998 is the net
result of a decrease in inventory from reduction programs and from
lower translated dollar values of foreign unit inventories, offset by
the acquired net working capital at Elmo (acquired February 1999). The
cash produced from the inventory reduction helped fund long-term debt
reductions, common stock repurchases and preferred dividends.
Cash flow from operations increased to $22.0 million in 1999 from $11.2
million in 1998. The acquisition of Elmo and decreases in overall
inventory levels contributed to this $10.8 million increase in cash
flow from operations.
Capital expenditures in 1999 were $9.6 million compared with $9.3
million in 1998. The acquisition of Elmo and spending by API Motion to
improve the API Portescap facility and support product introduction at
other facilities offset lower spending at API Heat Transfer.
17
<PAGE> 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, as a result of its financing and international operating
activities, is exposed to market risk from changes in interest rates
and foreign currency exchange rates which may adversely affect its
results of operations and financial position. The Company seeks to
minimize the risks from these interest rate and foreign currency
exchange rate fluctuations through its normal operating and financing
activities. When deemed appropriate, the Company utilizes forward
contracts to minimize the foreign currency exchange rate risk. The
Company does not use derivative financial instruments for trading or
other speculative purposes.
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's debt obligations which consist of a
revolving credit facility, industrial revenue bonds and various term
loans. The majority of these debt obligations have variable interest
rates, primarily based on the London Interbank Offered Rate (LIBOR) and
an index rate based on short-term federal tax exempt obligations. At
December 31, 1999 and December 31, 1998, the carrying value and fair
value under these obligations were approximately $69 million and $49
million, respectively. If these variable interest rates were to change
by 10%, the impact on consolidated interest expense would be
approximately $.4 million and $.2 million for 1999 and 1998,
respectively.
The Company's exposure to market risk for changes in foreign currency
exchange rates arises from investment in and intercompany balances with
foreign subsidiaries, receivables, payables, and firm commitments
arising from international transactions. The Company attempts to have
all such transaction exposures hedged with internal natural offsets to
the fullest extent possible and, once these opportunities have been
exhausted, selectively through derivative financial instruments with
third parties using forward agreements. At December 31, 1999 there were
nine outstanding forward agreements with aggregate fair values of
approximately $3 million with associated settlement dates identified in
the six-month period ending June 30, 2000. At December 31, 1998 one
forward agreement with a settlement date of April 30, 1999 was
outstanding with a fair value of approximately $.3 million. A 10%
change in foreign exchange rates would not have a material impact on
the fair value of the forward agreements or the Company's results of
operations or cash flows related to those contracts.
The above discussion and the estimated amounts generated from the
sensitivity analyses referred to above include forward-looking
statements of market risk which assume that certain adverse market
conditions may occur. Actual future market conditions may differ
materially from such assumptions. Accordingly, the forward-looking
statements should not be considered projections by the Company of
future events of losses.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 also requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. In June
1999, the FASB issued SFAS No. 137, which defers the effective date of
SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company
is continuing its process of analyzing and assessing the impact that
this new standard is expected to have on its consolidated results of
operations, cash flows and financial position, but has not yet reached
any conclusions.
18
<PAGE> 19
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 accompanying consolidated balance sheet and the
related consolidated statements of earnings, comprehensive income,
shareholders' equity and of cash flows present fairly, in all material
respects, the financial position of American Precision Industries Inc.
and its subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial
statements and financial statement schedules are the responsibility of
the Company's management; our responsibility is to express an opinion
on these financial statements and financial statement schedules based
on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United
States, 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.
As discussed in Note P to the financial statements, on February 15,
2000 the Company entered into an agreement and plan of merger providing
for the acquisition of American Precision Industries, Inc. by Danaher
Corporation.
PricewaterhouseCoopers LLP
Buffalo, New York
February 14, 2000
19
<PAGE> 20
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 4,227 $ 3,856
Accounts receivable less allowance for
doubtful accounts of $864 and $971 37,721 33,309
Inventories - net 41,266 43,715
Prepaid expenses 3,967 4,081
Deferred income taxes 2,451 2,672
----------------------------------------------------------------------------------------------------------
Total Current Assets 89,632 87,633
----------------------------------------------------------------------------------------------------------
Other Assets
Cost in excess of net assets acquired - net 25,636 20,129
Prepaid pension costs 1,398 1,747
Net cash value of life insurance 3,883 3,752
Other 2,433 2,344
----------------------------------------------------------------------------------------------------------
Total Other Assets 33,350 27,972
----------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
Gross 106,293 85,356
Less accumulated depreciation 40,905 31,696
----------------------------------------------------------------------------------------------------------
Property, Plant and Equipment - net 65,388 53,660
----------------------------------------------------------------------------------------------------------
Total Assets $ 188,370 $ 169,265
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
20
<PAGE> 21
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) DECEMBER 31, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term obligations $ 13,271 $ 14,158
Accounts payable 14,466 14,784
Accrued compensation and payroll taxes 9,258 6,838
Other liabilities and accrued expenses 8,446 7,071
Dividends payable 458 0
Current portion of long-term obligations 2,419 1,387
----------------------------------------------------------------------------------------------------------
Total Current Liabilities 48,318 44,238
----------------------------------------------------------------------------------------------------------
Deferred Income Taxes 2,194 2,111
Other Noncurrent Liabilities 3,206 3,964
Long-Term Obligations, less current portion 53,562 34,484
Shareholders' Equity
Series B seven percent (7%) cumulative 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 - 7,890,884 and 7,853,635 shares 5,259 5,234
Additional paid-in capital 14,067 13,707
Retained earnings 48,239 41,930
Accumulated other comprehensive (loss) income (3,307) 279
----------------------------------------------------------------------------------------------------------
90,414 87,306
Less cost of treasury shares, 1,001,562 and 374,262 9,324 2,838
----------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 81,090 84,468
----------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 188,370 $ 169,265
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
21
<PAGE> 22
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) 1999 1998 1997
--------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net Sales $236,333 $216,615 $184,070
Costs and Expenses
Cost of products sold 167,690 150,314 127,207
Selling and administrative 47,279 47,342 38,047
Research and product development 5,174 4,917 3,667
Interest and debt expense, net of investment income 3,839 3,356 2,753
Other expense -- -- 210
----------------------------------------------------------------------------------------------------------
223,982 205,929 171,884
----------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 12,351 10,686 12,186
Income Taxes 4,211 4,328 3,895
----------------------------------------------------------------------------------------------------------
Net Earnings $ 8,140 $ 6,358 $ 8,291
----------------------------------------------------------------------------------------------------------
Preferred stock dividend 1,831 -- --
Net Earnings Available to Common Shareholders $ 6,309 $ 6,358 $ 8,291
-------------------------------------------
Earnings Per Common Share
Basic $ .86 $ .85 $ 1.12
Diluted $ .85 $ .68 $ .97
-------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
22
<PAGE> 23
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
---------------------- ---- ---- ----
<S> <C> <C> <C>
Net Earnings $ 8,140 $ 6,358 $ 8,291
Other Comprehensive (Loss) Income, net of tax:
Foreign Currency Translation Adjustment (3,675) 1,113 (526)
Minimum Pension Liability Adjustment 89 (230) (4)
-------------------------------------------
Total Other Comprehensive (Loss) Income (3,586) 883 (530)
-------------------------------------------
Comprehensive Income $ 4,554 $ 7,241 $ 7,761
-------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
23
<PAGE> 24
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated other
comprehensive (loss) income
---------------------------
Equity
Adjustment
from Minimum
Preferred Stock Common Stock Additional Foreign Pension
(In thousands, ---------------- ---------------- Paid-in Retained Currency Liability
except per share data) Shares Amount Shares Amount Capital Earnings Translation Change
- ---------------------- ------ ------ ------ ------ ------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 3, 1997 -- -- 7,666 $5,110 $11,065 $ 27,281 -- $ (74)
Net earnings - 1997 -- -- -- -- -- 8,291 -- --
Stock options exercised, net -- -- 146 97 1,518 -- -- --
Securities issued in
Portescap acquisition:
Series B preferred stock 1,236 26,156 -- -- -- -- -- --
Warrants -- -- -- -- 524 -- -- --
Minimum pension liability,
net of tax -- -- -- -- -- -- -- (4)
Equity adjustment from foreign
currency translation -- -- -- -- -- -- (526) --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 1,236 26,156 7,812 5,207 13,107 35,572 (526) (78)
Net earnings - 1998 -- -- -- -- -- 6,358 -- --
Stock options exercised, net -- -- 42 27 418 -- -- --
Directors options -- -- -- -- 182 -- -- --
Minimum pension liability,
net of tax -- -- -- -- -- -- -- (230)
Equity adjustment from foreign
currency translation -- -- -- -- -- -- 1,113 --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 1,236 26,156 7,854 5,234 13,707 41,930 587 (308)
Net earnings - 1999 -- -- -- -- -- 8,140 -- --
Dividends declared on Series B
seven percent (7%) convertible
preferred stock -- -- -- -- -- (1,831) -- --
Stock options exercised, net -- -- 29 20 226 -- -- --
Directors options -- -- 8 5 108 -- -- --
Compensation expense related
to Stock Appreciation Rights -- -- -- -- 26 -- -- --
Stock purchased for treasury -- -- -- -- -- -- -- --
Minimum pension liability,
net of tax -- -- -- -- -- -- -- 89
Equity adjustment from foreign
currency translation -- -- -- -- -- -- (3,675) --
==================================================================================================================================
Balance at
December 31, 1999 1,236 $26,156 7,891 $5,259 $14,067 $ 48,239 $(3,088) $(219)
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
(In thousands, ------------------
except per share data) Shares Amount
- ---------------------- ------ ------
<S> <C> <C>
Balance at
January 3, 1997 374 $2,838
Net earnings - 1997 -- --
Stock options exercised, net -- --
Securities issued in
Portescap acquisition:
Series B preferred stock -- --
Warrants -- --
Minimum pension liability,
net of tax -- --
Equity adjustment from foreign
currency translation -- --
- ---------------------------------------------------------
Balance at
December 31, 1997 374 2,838
Net earnings - 1998 -- --
Stock options exercised, net -- --
Directors options -- --
Minimum pension liability,
net of tax --
Equity adjustment from foreign
currency translation -- --
Balance at
- ---------------------------------------------------------
December 31, 1998 374 2,838
Net earnings - 1999 -- --
Dividends declared on Series B
seven percent (7%) convertible
preferred stock -- --
Stock options exercised, net -- --
Directors options -- --
Compensation expense related
to Stock Appreciation Rights -- --
Stock purchased for treasury 627 6,486
Minimum pension liability,
net of tax --
Equity adjustment from foreign
currency translation -- --
Balance at
December 31, 1999 1,001 $9,324
=========================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
24
<PAGE> 25
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 8,140 $ 6,358 $ 8,291
Adjustments to reconcile net income to cash and
cash equivalents provided by operating activities:
Depreciation and amortization 11,882 9,411 7,434
Stock compensation programs 88 (180) 196
Change in various allowance accounts 83 (1,421) (614)
Other 194 370 170
(Increase) Decrease in:
Accounts receivable (3,424) (766) (2,537)
Inventories 5,322 (3,229) (389)
Prepaid expenses 184 1,619 (1,904)
Deferred income tax assets 136 1,736 1,086
Other assets, net (63) (879) (202)
Increase (Decrease) in:
Accounts payable & accrued expenses (879) (2,200) (4,030)
Deferred income tax liabilities 236 277 (1,277)
Other noncurrent liabilities 84 82 112
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 21,983 11,178 6,336
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Investments in acquisitions, net of cash and cash equivalents acquired (21,165) -- (9,286)
Purchases of investments and marketable securities -- (15) (68)
Additions to property, plant and equipment (9,571) (9,285) (8,737)
Proceeds from investments and marketable securities -- 702 2,660
Proceeds from sale of fixed assets 81 90 289
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (30,655) (8,508) (15,142)
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Exercise of stock options 256 322 1,615
Payment of long-term obligations, including current maturities (7,347) (1,272) (1,292)
Purchase of stock for treasury (6,485) -- --
Dividends paid (1,373) -- (471)
Increase in long-term obligations 23,321 626 4,423
Increase (Decrease) in short-term borrowings 297 (705) 5,018
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 8,669 (1,029) 9,293
- ----------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes 374 (98) (586)
Net Increase (Decrease) in Cash and Cash Equivalents 371 1,543 (99)
Cash and Cash Equivalents at Beginning of Year 3,856 2,313 2,412
- ----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 4,227 $ 3,856 $ 2,313
- ----------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,503 $ 3,006 $ 2,424
Income taxes net of tax refunds $ 2,837 $ 2,026 $ 3,037
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except shares and per share data)
For the three years in the period ended December 31, 1999.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) NATURE OF OPERATIONS American Precision Industries Inc. ("API" or
the "Company") is a multi-domestic, diversified manufacturing company
whose principal lines of business include the production and sale of
precision motion control devices and products for the heat transfer
industry. The Company's principal markets are in North America and
Europe.
(2) FISCAL YEAR During 1997 API converted its fiscal year to a calendar
year ending on December 31.
(3) BASIS OF PRESENTATION The accompanying consolidated financial
statements include the accounts of all subsidiaries. All material
intercompany accounts and transactions have been eliminated. The
Statement of Earnings and Comprehensive Income and the Statement of
Cash Flows include the results of API Schmidt-Bretten, API Portescap
and API Elmo since January 31, 1997, July 8, 1997, and February 1,
1999, the dates of their respective acquisitions.
(4) 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 as "foreign currency translation adjustment", a separate
component of shareholders' equity reported in Accumulated other
comprehensive (loss) income. Translation adjustments are not
tax-effected since they relate to investments which are permanent in
nature. 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.
The aggregate value of foreign exchange contracts outstanding as of
December 31, 1999 and 1998 were approximately $3,000 and $300,
respectively.
(5) INVENTORIES Inventories are valued at the lower of cost or market,
net of progress payments. At December 31, 1999 and December 31, 1998
inventories comprising approximately 20% and 25%, respectively, of
consolidated inventories were valued using the last-in, first-out
(LIFO) method. Other inventories are priced using the first-in,
first-out (FIFO) method.
26
<PAGE> 27
(6) PROPERTY, PLANT AND EQUIPMENT These assets are stated at cost and
are depreciated for financial reporting purposes principally by use of
the straight-line method over their estimated useful lives: buildings
and improvements - 5 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.
Total depreciation expense for 1999, 1998, and 1997 was $10,805,
$8,669, and $6,900, respectively.
(7) 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 25-30
years on a straight-line basis. Amortization expense amounted to $966,
$724, and $455 in 1999, 1998, and 1997, respectively. Accumulated
amortization of goodwill at December 31, 1999 and 1998 was $2,356 and
$1,512, respectively.
(8) INCOME TAXES The Company follows the asset and liability approach
to account for income taxes. This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and
the tax bases of assets and liabilities. No provision has been made for
United States income taxes applicable to undistributed earnings of
certain foreign subsidiaries as it is the intention of the Company to
indefinitely reinvest those earnings in the operations of those
entities.
(9) 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 plans 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 API Harowe are based
upon years of service, not to exceed 35, multiplied by a fixed rate
specified in the union contract. Benefits under this plan are funded
annually based upon funding recommendations of the plan actuaries.
Other union employees are covered under defined contribution plans. The
Company's contributions to these plans are set forth under the
provisions of the specific contracts.
The Company's principal foreign subsidiaries also maintain defined
benefit pension plans covering substantially all employees of those
subsidiaries.
27
<PAGE> 28
(10) 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 or income is recorded with respect to changes in the value of
stock appreciation rights. The Company has adopted certain disclosure
requirements as prescribed by FASB Statement No. 123.
(11) ADVERTISING The Company expenses the production costs of
advertising in the year in which the advertising occurs. Total
advertising expense in 1999, 1998, and 1997 was $1,674, $2,098, and
$1,661, respectively.
(12) ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from these estimates.
B. BUSINESS ACQUISITIONS
On February 1, 1999, API Elmo AB ("Elmo"), a newly formed wholly-owned
subsidiary of the Company, purchased the on-going business and related
assets of ELMO Industrier AB, a manufacturer of specialty electronic
induction and servo motors. The purchase price consisted of a net cash
payment of Swedish kronor (SEK) 169,910 plus the assumption of SEK
44,200 of bank debt (aggregate of approximately $27.5 million U.S.).
Liabilities in the amount of approximately $225 were established
related to the Elmo acquisition. Actual charges incurred during 1999
reduced this reserve to approximately $50 as of December 31, 1999.
On January 31, 1997, API Schmidt-Bretten Beteiligungs GmbH, a wholly
owned subsidiary of the Company, acquired all the outstanding capital
stock of Schmidt-Bretten GmbH ("SBG") for approximately $6,100 in cash
and a note for $1,800. SBG manufactures plate and frame heat exchangers
in Bretten, Germany.
On July 8, 1997, the Company acquired all the outstanding capital stock
of Portescap, a Swiss manufacturer of micromotors. The purchase price
consisted of Series A convertible preferred stock of the Company with a
liquidation value of $21,156, an exchangeable note for $5,000, and cash
of approximately $3,800. The Series A convertible preferred stock and
the exchangeable note were exchanged for 1,236,337 shares of Series B
convertible preferred stock, which, in turn is convertible at $17.00
per share into 1,538,603 shares of the Company's common stock.
In connection with the 1997 acquisitions, a liability of approximately
$2,100 was established for redundancy and relocation costs. As of
December 31, 1999 and December 31, 1998, all significant costs related
to this reserve have been incurred and charged to the appropriate
liability. Remaining nominal costs are expected to be incurred in 2000.
The aforementioned acquisitions have been accounted for as purchase
transactions in accordance with APB No.16, "Business Combinations".
28
<PAGE> 29
The following table presents unaudited pro forma results of operations
for 1999 and 1998 as if the acquisition of Elmo had occurred at the
beginning of fiscal year 1998, after giving effect to certain
adjustments, including amortization of goodwill, adjusted depreciation
of fair value of assets acquired, interest expense on additional debt
incurred 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
acquisition taken place at the beginning of 1998 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 entities since precise estimates of such
benefits cannot be quantified.
Pro forma results with acquisition:
<TABLE>
<CAPTION>
(In thousands,
except per share data) 1999 1998
---------------------- ---- ----
<S> <C> <C>
(unaudited)
Revenues $ 238,501 $ 246,044
Net earnings $ 8,135 $ 6,485
Earnings Per
Common Share
Basic $ .86 $ .87
Diluted $ .85 $ .69
</TABLE>
C. CASH AND CASH EQUIVALENTS
Cash equivalents consist of money market funds, commercial
paper, and certificates of deposit with original maturities of
three months or less.
D. INVENTORIES - NET
The major classes of inventories are as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
-------------- ---- ----
<S> <C> <C>
Finished goods $ 10,601 $ 11,751
Work in process 8,551 8,509
Raw Materials 22,114 23,455
-------- --------
$ 41,266 $ 43,715
</TABLE>
Had the cost of all inventories at December 31, 1999 and December 31,
1998 been determined by the FIFO method, these amounts would have been
greater by $851 and $915, respectively.
E. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities is primarily comprised of accrued pension
costs for Schmidt-Bretten Germany and API Harowe in total of $2,679 and
$3,123 at December 31, 1999 and 1998, respectively. This balance also
includes the noncurrent portion of bonus obligations under the
Company's incentive plan, deferred compensation associated with the
stock appreciation rights granted to the Chief Executive Officer in
1992, and the noncurrent portion of workers compensation liability
reserve. In 1998 the balance included approximately $500 related
29
<PAGE> 30
to the discount on stock options granted to certain members of the
Board of Directors of the Company in lieu of directors' fees. This
liability has been reported as a current liability for 1999.
F. SHORT AND LONG-TERM OBLIGATIONS
(1) SHORT-TERM OBLIGATIONS At December 31, 1999 and 1998, short-term
bank borrowings consisted of:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
-------------- ---- ----
<S> <C> <C>
Portescap (primarily Switzerland) $ 8,476 $ 8,646
Schmidt-Bretten 1,544 5,512
API 3,251 --
--------- --------
$ 13,271 $ 14,158
</TABLE>
The weighted average interest rate on the outstanding short-term debt
at December 31, 1999 was 4.7% and was 4.6% at December 31, 1998.
The short-term credit facilities available at December 31, 1999 and
December 31, 1998 consisted of:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
-------------- ---- ----
<S> <C>
Elmo $ 1,764 --
Portescap 2,353 $ 1,045
Schmidt-Bretten 5,304 2,475
API 115 1,544
------- -------
$ 9,536 $ 5,064
</TABLE>
(2) LONG-TERM OBLIGATIONS consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
-------------- ---- ----
<S> <C> <C>
Industrial Revenue Bonds $10,010 $11,165
Revolving Credit Debt 37,020 18,250
Portescap Debt:
Mortgage loans 3,318 3,860
Other long-term loans 695 1,775
Elmo Debt:
Long-term loans 3,401 --
Capital leases 881 --
Supplemental benefit program 656 821
------- -------
55,981 35,871
Less current obligations 2,419 1,387
------- -------
Long-term obligations $53,562 $34,484
</TABLE>
30
<PAGE> 31
On August 31, 1998, the Company signed an agreement with HSBC Bank and
Fleet National Bank for a $100 million, multi-currency, five-year
unsecured Revolving Credit Facility. This replaced the Company's $20
million Revolving Credit Facility. The credit facility is available for
general corporate purposes and potential acquisitions. The facility is
guaranteed by the Company's U.S. subsidiaries. Amounts available under
this revolving credit facility were $63 million and $82 million as of
December 31, 1999 and December 31, 1998, respectively. The Company used
$24.2 million of this amount on February 1, 1999 to acquire the assets
of ELMO Industrier AB. The interest rate on the Revolving Credit, under
the LIBOR Rate Option in the Credit Agreement, averaged 5.9% as of
December 31, 1999 and 5.8% as of December 31, 1998.
The Company has outstanding obligations under three industrial revenue
bond ("IRB") financings relating to the acquisition or construction of
production facilities. The bonds are subject to mandatory sinking fund
repayment schedules with maturities extending through 2015. The bonds
are collateralized by assets with a depreciated value of $10,936 at
December 31, 1999 and $11,587 at December 31, 1998. 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. There were no unexpended revenue bond proceeds at December 31,
1999 or December 31, 1998.
The following are the weighted average interest rates at December 31,
1999 and 1998 for long-term debt:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Industrial Revenue Bonds 3.5% 3.9%
Revolving Credit Debt 5.9% 5.8%
Portescap Debt 4.9% 4.3%
Elmo Debt 4.4% --
</TABLE>
The Revolving Credit and each of the IRB's are subject to various
restrictive covenants, with respect to which the Company is in
compliance.
Costs related to the acquisition of long-term debt are amortized over
the life of the debt instrument. Fees are expensed as incurred.
Together, these items comprise debt expense, which was $398 in 1999 and
$286 in 1998. These expenses include amortization costs and fees
related to the $100 million credit facility established August 31,
1998.
Under the supplemental benefit program, the Company provides retirement
or death benefits to certain officers and certain executives of
subsidiaries. In most cases, officers are provided an annual benefit
equal to 20% of their current salary at the time of retirement, payable
over fifteen years. Four participants are provided a specified benefit
which, in one case, is indexed to the Consumer Price Index. These
benefits are also payable over a fifteen year period. 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 certain participants, the cash surrender values of which
are recorded in Other Assets.
31
<PAGE> 32
Over the next five years, the Company will make long-term obligation
payments of approximately $2,235 in 2000, $2,459 in 2001, $2,303 in
2002, $1,634 in 2003, and $743 in 2004. Such amounts exclude the
Revolving Credit Debt.
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
with an initial term in excess of one year are payable as follows: 2000
- $925, 2001 - $757, 2002 - $149, 2003 - $8, 2004 - $5. Total rental
expense for 1999, 1998, and 1997 was $1,397, $1,318, and $1,263,
respectively.
H. EMPLOYEE BENEFITS
In addition to the aforementioned supplemental benefit program, the
Company has a defined benefit retirement plan covering all nonunion
employees in the United States ("Salaried Plan"). API Harowe has a
defined benefit retirement plan covering all hourly employees in its
West Chester, Pennsylvania location ("Harowe Hourly Plan"). The Company
also makes contributions to union-sponsored plans.
32
<PAGE> 33
The Company's principal subsidiaries in Switzerland (Portescap) and
Germany (SBG) also maintain defined benefit pension plans covering
substantially all employees of those subsidiaries. Reconciliations of
the Benefit Obligation, Plan Assets and Funded Status of certain
defined benefit retirement plans are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------- ------------------------
Harowe Harowe
Salaried Hourly Portescap SBG Salaried Hourly
(In thousands) Plan Plan Plan Plan Plan Plan
-------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Change in Projected Benefit Obligation:
Benefit Obligation - Beginning of Period $ 8,801 $ 984 $ 61,245 $ 3,149 $ 7,672 $ 780
Service Cost 797 36 2,398 -- 780 28
Interest Cost 673 63 2,264 167 592 56
Actuarial Loss 73 14 (2,642) 63 177 120
Distributions Paid (363) (46) (3,820) (173) (420) --
Foreign Currency Exchange Rate -- -- (6,788) (447) -- --
Impact of Plan Changes -- -- -- -- -- --
Other 618 (149) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Benefit Obligation - End of Period $ 10,599 $ 902 $ 52,657 $ 2,759 $ 8,801 $ 984
- -----------------------------------------------------------------------------------------------------------------------------------
Change in Plan Assets:
Fair Value of Plan Assets -
Beginning of Period $ 11,622 $ 622 $ 58,470 $ 389 $ 11,749 $ 499
Actual Return on Plan Assets 926 75 5,019 19 344 30
Employer Contributions -- 73 1,922 -- -- --
Distributions Paid (430) (48) (3,820) (89) (471) --
Foreign Currency Exchange Rate -- -- (6,753) (51) -- 93
Asset Gain -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Fair Value of Plan Assets - End of Period $ 12,118 $ 722 $ 54,838 $ 268 $ 11,622 $ 622
- -----------------------------------------------------------------------------------------------------------------------------------
Reconciliation of Funded Status:
Funded Status $ 1,519 $ (180) $ 2,181 $ (2,491) $ 2,821 $ (362)
Unrecognized Net Actuarial (Gain) Loss (301) 66 (8,569) 321 (1,161) 234
Unrecognized Transition Amount (123) -- 821 -- (246) --
Unrecognized Prior Service Cost 278 -- 5,514 -- 309 10
Additional minimum liability -- (66) -- (321) -- (244)
- -----------------------------------------------------------------------------------------------------------------------------------
Prepaid (Accrued) Pension Cost $ 1,373 $ (180) $ (53) $ (2,491) $ 1,723 $ (362)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------
Portescap SBG
(In thousands) Plan Plan
-------------- ---- ----
<S> <C> <C>
Change in Projected Benefit Obligation:
Benefit Obligation - Beginning of Period $ 48,419 $ 2,695
Service Cost 2,320 --
Interest Cost 2,323 160
Actuarial Loss 5,759 248
Distributions Paid (4,301) (176)
Foreign Currency Exchange Rate 1,939 222
Impact of Plan Changes 4,786 --
Other -- --
- ----------------------------------------------------------------------------
Benefit Obligation - End of Period $ 61,245 $ 3,149
- ----------------------------------------------------------------------------
Change in Plan Assets:
Fair Value of Plan Assets -
Beginning of Period $ 55,015 $ 427
Actual Return on Plan Assets 2,765 23
Employer Contributions 2,039 --
Distributions Paid (4,301) (90)
Foreign Currency Exchange Rate 1,920 29
Asset Gain 1,032 --
- ----------------------------------------------------------------------------
Fair Value of Plan Assets - End of Period $ 58,470 $ 389
- ----------------------------------------------------------------------------
Reconciliation of Funded Status:
Funded Status $ (2,775) $ (2,760)
Unrecognized Net Actuarial (Gain) Loss (4,730) 305
Unrecognized Transition Amount 1,028 --
Unrecognized Prior Service Cost 6,713 --
Additional minimum liability -- (305)
- ----------------------------------------------------------------------------
Prepaid (Accrued) Pension Cost $ 236 $ (2,760)
- ----------------------------------------------------------------------------
</TABLE>
As of December 31, 1999 and December 31, 1998, the tax effect on the gross
additional minimum pension liability was $171 and $230, respectively.
33
<PAGE> 34
The following factors have been assumed in determining the actuarial present
value of projected benefit obligation shown in the previous table:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- --------------------------------------------
Harowe Harowe
Salaried Hourly Portescap SBG Salaried Hourly Portescap SBG
Plan Plan Plan Plan Plan Plan Plan Plan
---------- ---------- ------------ -------- ---------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Discount Rate 7.50% 7.50% 4.25% 6.0% 7.75% 6.5% 4.0% 6.0%
Rate of increase in
compensation 4.0% N/A 2.5-3.5% N/A 4.0% N/A 2.5-3.5% N/A
Annual increase in
pensions N/A N/A 1.5% 2.0% N/A N/A 1.5% 2.0%
Expected long-term
rate of return 9.0% 8.0% 5.50% 6.0% 9.0% 6.5% 5.0% 6.0%
</TABLE>
NA - not applicable
Net periodic pension cost associated with the plans reflected in
the previous table for 1999 and 1998 included the following
components:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------- -----------------------------------------
Harowe Harowe
Salaried Hourly Portescap SBG Salaried Hourly Portescap SBG
(In thousands) Plan Plan Plan Plan Plan Plan Plan Plan
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service costs -
benefits earned
during the period $ 797 $ 36 $ 2,398 $ - $ 780 $ 28 $ 2,320 $ -
Interest on projected
benefit obligations 673 63 2,264 167 592 56 2,323 174
Actual return on
assets (926) (75) (3,022) (19) (335) (35) (2,765) (20)
Amortization of
transition assets
and deferrals (195) 44 566 - (858) 13 586 -
Employee contributions N/A N/A (767) - N/A N/A (891) -
----------------------- ---------- ---------- ------------ --------- ---------- ---------- ------------ ---------
Net periodic
pension cost $ 349 $ 68 $ 1,439 $148 $ 179 $ 62 1,573 $ 154
----------------------- ---------- ---------- ------------ --------- ---------- ---------- ------------ ---------
</TABLE>
The total expense for all retirement plans including union-sponsored
plans was $2,286, $2,426, and $1,247, in 1999, 1998, and 1997,
respectively.
34
<PAGE> 35
I. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has 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
December 31, 1999 and December 31, 1998, management believes the
carrying amounts of its financial instruments approximates fair
value.
J. SHAREHOLDERS' EQUITY
(1) Preferred Stock - On November 14, 1997, the shareholders of
the Company authorized 1,250,000 shares of Series B Seven
Percent (7%) Cumulative Convertible Preferred Stock ("Series B
Preferred"), 1,236,337 shares of which were issued to the seller
of Portescap in exchange for the 20,000 shares of Series A Seven
Percent (7%) Cumulative Convertible Preferred Stock and the
$5,000 exchangeable note issued on July 8, 1997 in connection
with the Portescap acquisition. The Series B Preferred has a
liquidation value of $26,156, and is convertible in whole or in
part at the option of the holder at any time into 1,538,603
shares of the Company's common stock at $17.00 per share. The
Series B Preferred may be redeemed at the option of the Company
upon 45 days notice to the holder. Dividends began to accrue on
the Series B Preferred on January 1, 1999 and were paid
quarterly. As of December 31, 1999, $1,373 has been paid. On all
matters presented to API's shareholders for a vote, except the
election of directors and ratification of independent auditors,
the holder of the Series B Preferred is entitled to cast votes
for that number of common shares into which the Series B
Preferred is convertible, currently 1,538,603 shares. The
Company also has authorized 20,000 shares of preferred stock
(par value $50 a share), none of which is issued or outstanding.
(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
U.S. 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.
35
<PAGE> 36
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 1999, 1998, and
1997 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 expenses
for options granted after 1994 would have reduced the Company's
net earnings and earnings per share to the pro forma amounts
shown below:
<TABLE>
<CAPTION>
(In thousands,
except per share data) 1999 1998 1997
------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net earnings:
As reported $ 8,140 $ 6,358 $ 8,291
Pro forma $ 6,876 $ 5,318 $ 7,653
Earnings per common share:
As reported - basic $ .86 $ .85 $ 1.12
As reported - diluted $ .85 $ .68 $ .97
Pro forma - basic $ .69 $ .71 $ 1.03
Pro forma - diluted $ .68 $ .57 $ .90
</TABLE>
The fair value of each option granted in 1999, 1998, and 1997,
was estimated using the Black-Scholes option pricing model with
the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Risk-free interest rate 4.9% 5.6% 6.9%
Dividends $ -- $ -- $ --
Expected term in years 6.8 6.9 9.1
Annual standard deviation
(volatility) 33% 33% 26%
</TABLE>
The weighted average fair value of options granted in 1999,
1998, and 1997 was $4.58, $6.00, and $9.35 respectively.
36
<PAGE> 37
A summary of the status of options granted under all employee
plans, including the options granted to the Company's Chief
Executive Officer in 1992, is presented below.
<TABLE>
<CAPTION>
NUMBER OF SHARES WEIGHTED AVERAGE
SUBJECT TO OPTIONS EXERCISE PRICE ($)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding January 3, 1997 1,001,957 9.15
Granted in 1997 254,150 17.83
Exercised in 1997 (156,279) 8.92
Forfeited in 1997 (54,888) 12.45
---------------------------------------------------------------------------------------------------
Outstanding December 31, 1997 1,044,940 11.12
Granted in 1998 528,800 17.83
Exercised in 1998 (46,480) 8.71
Forfeited in 1998 (24,707) 19.39
---------------------------------------------------------------------------------------------------
Outstanding December 31, 1998 1,502,553 13.42
Granted in 1999 195,400 10.22
Exercised in 1999 (29,500) 7.55
Forfeited in 1999 (118,599) 14.48
---------------------------------------------------------------------------------------------------
Outstanding December 31, 1999 1,549,854 13.05
</TABLE>
The number of shares subject to options exercisable at the end
of 1999, 1998, and 1997 were 785,364, 619,158, and 504,215,
respectively.
37
<PAGE> 38
The following tables summarize information about options
outstanding at December 31, 1999:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED-
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE
PRICES ($) OUTSTANDING LIFE PRICE ($)
--------------------- -------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
6.625 - 9.688 521,084 3.58 years 7.947
10.250 - 13.000 347,720 7.86 years 11.374
15.125 - 17.875 393,700 7.89 years 17.407
18.063 - 23.438 287,350 8.20 years 18.270
</TABLE>
OPTIONS EXERCISABLE
<TABLE>
<CAPTION>
RANGE OF NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES ($) EXERCISABLE EXERCISE PRICE ($)
----------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
6.625 - 9.500 477,384 7.840
10.500 - 13.000 108,480 12.310
15.125 - 17.875 131,580 17.396
18.063 - 23.438 67,920 18.542
</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 became 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
income of $91 and $525 in 1999 and 1998, respectively and
expense of $53 in 1997 in connection with the change in the
value of the SARs.
On April 25, 1997, the Board of Directors adopted the 1997
Officers Stock Option Plan ("1997 Plan") and granted an option
for 200,000 shares of common stock, exercisable at $17.50 per
share, to the Company's Chief Executive Officer under the 1997
Plan. This 1997 Plan was approved by the shareholders at the
Annual Shareholders Meeting in April, 1998. Two years from the
date of grant, 40,000 shares become exercisable and 40,000
additional shares become exercisable annually thereafter. The
excess of the common stock market value of $18.06 over the
exercise price of $17.50 per share, multiplied by 200,000 shares
will become a charge against the Company's earnings over the
vesting period ending in April 2003. The shares relating to this
option are included in the shares granted in 1998.
38
<PAGE> 39
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 at December 31, 1999
totaled 109,893 shares, of which 69,482 were exercisable on that
date, and 15,936 shares were available for future grants of
options under the plan.
On April 24, 1998, the Board of Directors adopted a Director
Stock Option Award Plan under the 1995 Director Plan. Under this
program, each director will receive a grant of stock options
("Discretionary Options") on the date of the annual meeting of
shareholders based upon a formula which uses the average
compensation earned by all directors during the prior year and a
multiplier related to the Company's EVA(R) performance for that
year. Using this formula, a ten-year Discretionary Option for
2,100 shares exercisable at $10.31 per share was granted April
23, 1999 and 1,500 shares exercisable at $18.06 per share was
granted April 24, 1998 to each non-employee director.
Prior to 1998, eligible directors with five or more years of
continuous service were entitled to a benefit of $10,000 a year
payable over ten years upon termination of their services as
prescribed in the retirement plan. On April 24, 1998, the Board
of Director's approved a plan to replace this retirement plan
with a one-time grant of stock options. The grant was determined
by replacing the present value of each individual retirement
plan with the present fair value of a grant of options
determined by utilizing the Black-Scholes option pricing model.
Under this plan, a total of 27,400 options were granted at
$18.06 per share.
As part of the compensation for services in connection with the
Portescap acquisition, API's financial advisor was issued a
warrant for the purchase of 50,000 shares of the Company's
common stock. The warrant is exercisable at $12.95 per share and
expires on July 8, 2002. The value of the warrant, calculated to
be $524 under the Black-Scholes formula, has been included in
the Portescap acquisition costs and added to the Company's
paid-in capital in 1997.
Effective January 1, 1998, the Company entered into an agreement
with Decision Process International ("DPI") under which DPI will
provide training services to API personnel in exchange for API
stock warrants. The contract stipulates that DPI is entitled to
receive API stock warrants in exchange for actual training
services rendered which allows them to purchase up to maximum of
50,000 shares of API common stock at an exercise price of $19.50
per common share. As of December 31, 1999, API has granted DPI
9,231 warrants in payment for services rendered during the
period January 1, 1998 through December 31, 1999.
39
<PAGE> 40
K. INCOME TAXES
Earnings before provision for income taxes consisted of:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $4,358 $3,879 $6,945
Foreign 7,993 6,807 5,241
-----------------------------------------------------------------------------------------------------------
$12,351 $10,686 $12,186
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax provision:
U.S. Federal $1,270 $ 748 $1,757
State 422 502 481
Foreign 2,244 715 409
-----------------------------------------------------------------------------------------------------------
Total current tax provision $3,936 $1,965 $2,647
-----------------------------------------------------------------------------------------------------------
Deferred tax provision (benefit):
U.S. Federal 31 173 5
State (8) (3) (219)
Foreign 252 2,193 1,462
-----------------------------------------------------------------------------------------------------------
Total deferred tax provision (benefit) 275 2,363 1,248
-----------------------------------------------------------------------------------------------------------
Total provision for income taxes $4,211 $4,328 $3,895
-----------------------------------------------------------------------------------------------------------
</TABLE>
The provision for foreign deferred income taxes for 1999 and
1998 includes tax expense of $219 and $589, respectively, due to
the reduction of the Swiss net deferred tax asset as a result of
securing a federal and cantonal Swiss tax holiday commencing in
1999.
The provision for income taxes does not include the tax benefits
of $23, $122, and $440, for 1999, 1998, and 1997, respectively,
associated with the exercise of stock options which have been
credited to paid-in-capital.
The provision for income tax differs from the federal
statutory rate of 34% due to the following:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State income taxes, less federal effect 2.2 3.0 1.4
Unremitted earnings and tax rate
differences of foreign subsidiaries (3.6) (0.5) 0.7
Effect of Swiss tax holiday on net
deferred tax asset 1.8 5.5 --
Adjustment of prior years' taxes -- (1.8) (1.8)
Other (0.3) 0.3 (2.3)
-----------------------------------------------------------------------------------------------------------
Effective tax rate 34.1% 40.5% 32.0%
</TABLE>
40
<PAGE> 41
Deferred tax assets (liabilities) at December 31, 1999 and
December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retirement and death benefits $ 391 $ 452
Deferred compensation 116 338
Inventories 1,469 1,283
Accrued vacation pay 605 606
Various reserves 307 456
Accrued pension costs 627 720
Net operating loss carry forwards 153 400
Tax credits 487 218
Other 79 59
-----------------------------------------------------------------------------------------------------------
Total deferred tax assets 4,234 4,532
-----------------------------------------------------------------------------------------------------------
Property, plant and equipment (2,459) (2,772)
Prepaid pension costs (572) (572)
Cost in excess of net assets acquired (628) (415)
Earnings of foreign subsidiary (50) 0
State income taxes (137) (151)
Other (131) (61)
-----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (3,977) (3,971)
-----------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 257 $ 561
</TABLE>
In 1999, the Company adopted a plan of liquidation of its
wholly-owned subsidiary, Deltran St. Kitts. A deferred tax
liability of approximately $50 has been recorded during 1999
applicable to the cumulative earnings.
The Company has not recorded deferred income taxes applicable to
undistributed earnings of certain foreign subsidiaries that are
indefinitely reinvested in foreign operations. Undistributed
earnings amounted to approximately $9,956 at December 31, 1999.
If earnings of such foreign subsidiaries were not reinvested, a
deferred tax liability, before applicable foreign tax credits,
of approximately $3,385 would have been required. In addition,
foreign withholding taxes would be imposed on actual
distributions.
L. BUSINESS SEGMENT DATA
The Company has adopted FASB Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information". This
statement revised the manner in which an enterprise must report
information concerning its operating segments. Adoption of this
statement by the Company did not require significant changes in
the way segments were disclosed.
The Company operates in two business segments: Motion
Technologies and Heat Transfer. These reportable segments are
strategic business units that offer different products and
services. The segments are managed separately based on the
fundamental differences of their operations.
41
<PAGE> 42
Operations of the Motion Technologies segment is focused on the
precision motion control market with product lines that include
servo and stepper motors, micromotors, drives, clutches, brakes,
magnetic components, feedback devices and gear boxes. The Heat
Transfer segment includes the production and sale of shell &
tube, plate & frame and air-cooled aluminum heat exchangers,
packaged chillers and refrigeration condensers.
Total net sales by segment consist entirely of sales to
unaffiliated customers. Operating profit is net sales less
operating expenses. Operating profit does not include the
following items: general corporate income and expense,
investment income, interest and debt 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 consists principally of cash and
cash equivalents, insurance-related assets and other assets.
Information by industry segment is as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Motion $ 145,747 $ 121,531 $ 91,063
Heat Transfer 90,586 95,084 93,007
-----------------------------------------------------------------------------------------------------------
Total Net Sales $ 236,333 $ 216,615 $ 184,070
-----------------------------------------------------------------------------------------------------------
OPERATING PROFIT
Motion $ 12,487 $ 9,526 $ 10,870
Heat Transfer 8,749 9,065 8,253
-----------------------------------------------------------------------------------------------------------
Combined Operating Profit 21,236 18,591 19,123
General Corporate expense, net (5,046) (4,549) (4,184)
Interest and debt expense,
net of investment income (3,839) (3,356) (2,753)
-----------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes $ 12,351 $ 10,686 $ 12,186
-----------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Motion $ 123,757 $ 97,970 $ 93,555
Heat Transfer 51,615 57,690 56,916
General Corporate 12,998 13,605 12,199
-----------------------------------------------------------------------------------------------------------
Total Identifiable Assets $ 188,370 $ 169,265 $ 162,670
-----------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
Motion $ 7,802 $ 5,670 $ 3,991
Heat Transfer 3,812 3,572 3,318
General Corporate 268 169 125
-----------------------------------------------------------------------------------------------------------
Total Depreciation and Amortization $ 11,882 $ 9,411 $ 7,434
-----------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Motion $ 6,503 $ 5,182 $ 3,917
Heat Transfer 3,000 3,838 4,517
General Corporate 68 265 303
-----------------------------------------------------------------------------------------------------------
Total Capital Expenditures $ 9,571 $ 9,285 $ 8,737
-----------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 43
Geographic operating data is as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
North America $134,633 $140,381 $130,541
Europe 92,811 67,574 47,978
Other 8,889 8,660 5,551
------------------------------------------------------------------------------------------------------------
Total Net Sales $236,333 $216,615 $184,070
------------------------------------------------------------------------------------------------------------
EXPORT SALES
North America $ 11,843 $ 7,711 $ 9,462
Europe 56,819 47,541 33,340
Other 12,247 11,613 9,814
------------------------------------------------------------------------------------------------------------
Total Export Sales $80,909 $66,865 $52,616
------------------------------------------------------------------------------------------------------------
OPERATING PROFIT
North America $ 4,597 $ 3,879 $ 6,945
Europe 6,963 6,202 4,595
Other 791 605 646
------------------------------------------------------------------------------------------------------------
Total Operating Profit $12,351 $10,686 $12,186
------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
North America $86,913 $87,087 $87,155
Europe 94,955 75,550 70,152
Other 6,502 6,628 5,363
------------------------------------------------------------------------------------------------------------
Total Identifiable Assets $188,370 $169,265 $162,670
------------------------------------------------------------------------------------------------------------
</TABLE>
Export sales from North America are primarily to Europe and to
other countries within North America. Export sales from Europe
are principally to countries within their geographic segment.
The Company's international operations may be affected by
exchange controls, currency fluctuations and laws or policies of
particular countries, as well as the laws or policies of the
United States affecting foreign trade and investment. The
Company does not consider that its international businesses are
exposed to significant political or economic risks which are
disproportionate to ordinary risks of doing business, whether
domestic or international.
M. COMPREHENSIVE INCOME
The Company has adopted FASB Statement 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 this statement, the term "comprehensive income"
is used to describe the total net earnings plus other
comprehensive income (loss). For the Company, Other
Comprehensive Income (loss) includes currency translation
adjustments on foreign subsidiaries and minimum pension
liability not yet recognized as net periodic pension cost.
Application of SFAS 130 has no impact on the Company's results
of operations or its financial position.
43
<PAGE> 44
N. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, Fiscal
except per share data) First Second Third Fourth Year
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Net Sales $58,753 $58,405 $58,058 $61,117 $236,333
Gross profit 16,832 16,927 17,217 17,667 68,643
Net earnings available to
Common shareholders 1,427 1,576 1,541 1,765 6,309
Earnings per common share:
Basic 0.19 0.21 0.21 0.25 0.86
Diluted 0.19 0.21 0.21 0.24 0.85
1998
Net Sales $55,013 $53,659 $54,995 $52,948 $216,615
Gross profit 16,486 16,060 16,453 17,302 66,301
Net earnings available to
Common shareholders 1,559 1,024 1,886 1,889 6,358
Earnings per common share:
Basic 0.21 0.14 0.25 0.25 0.85
Diluted 0.17 0.11 0.20 0.20 0.68
</TABLE>
O. EARNINGS PER SHARE
The following earnings per share (EPS) amounts reflect the 1997
adoption of Statement of Financial Accounting Standards No. 128
Earnings per Share ("SFAS 128"). Basic earnings per share is
computed by dividing net earnings available to common
shareholders 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.
The sequence in which potential common shares are considered in
the computation of diluted EPS may effect the amount of dilution
that they produce. To reflect maximum potential dilution, each
issue or series of potential common shares should be considered
in sequence from the most dilutive to the least dilutive. If
including the next group of potential shares in the sequence
results in a higher EPS than prior to their inclusion, the
potential shares are antidilutive, and they should not be
included in the calculation of diluted EPS.
44
<PAGE> 45
<TABLE>
<CAPTION>
(In thousands, except per share data) 1999 1998 1997
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C> <C>
Net earnings $8,140 $6,358 $8,291
Series B preferred stock dividends 1,831 -- --
---------------------------------------------------------------------------------------------------------
Net earnings available to common shareholders $6,309 $6,358 $8,291
Weighted average common shares outstanding (basic) 7,290 7,464 7,381
Incremental shares from assumed conversions:
Stock options and warrants 126 375 395
Series B convertible preferred stock (a) 1,539 761
---------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding (diluted) 7,416 9,378 8,537
Earnings per share:
Basic $ 0.86 $ 0.85 $ 1.12
Diluted $ 0.85 $ 0.68 $ 0.97
</TABLE>
(a) The assumed conversion of 1,539 shares of preferred stock is
not considered in the calculation of diluted earnings per share
for 1999 since the effect is antidilutive.
P. SUBSEQUENT EVENTS
- On February 15, 2000 API entered into an Agreement and Plan of
Merger ("Merger Agreement") providing for the acquisition of
API by Alpha Acquisition I Corp. ("Purchaser"), a newly formed
Delaware corporation wholly-owned by Danaher Corporation
("Danaher"), a New York Stock Exchange listed company.
Pursuant to the Merger Agreement, Purchaser commenced a tender
offer on February 24, 2000 to purchase all of the outstanding
shares of API's Common Stock at a cash price of $19.25 per
share. Following consummation of the offer and subject to
certain conditions, Purchaser will be merged into API. In the
merger, each share of API's Common Stock not acquired in the
tender offer will be converted into the right to receive
$19.25 in cash. The tender offer expired at 12:00 midnight,
New York City time on March 22, 2000.
Upon the expiration of the tender offer, 97% of the API Common
Stock was tendered. Purchaser intends to acquire the remaining
API Common Stock at a cash value of $19.25 per share.
Finalization of the merger is contemplated by not later than
early April, 2000.
The specific details of this proposed transaction were filed
with the Securities and Exchange Commission by API on February
24, 2000 in Solicitation/Recommendation Statement Schedule
14D-9.
- On January 31, 2000, the Company sold a parcel of vacant land
located in Buffalo, New York for $1.1 million, recognizing a
net gain of approximately $.9 million. This land parcel was
located adjacent to the company-owned facility which houses
the API Basco operations and API corporate office. The Company
had no identified future use for this land.
45
<PAGE> 46
FORWARD-LOOKING INFORMATION - SAFE HARBOR STATEMENT
Certain information set forth herein (other than historical data
and information) may 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 Elmo acquisition into the Company, the success
of the actions taken to improve profitability, the realization
of benefits from cost savings initiatives, market acceptance of
new products, the absence of any disruptions to the Company's
business as a result of the ongoing conversion to the Euro, and
the Company's effectiveness at gaining market share, as well as
general economic conditions in North America, Western Europe and
Asia. The Company expressly disclaims any obligation to update
any forward-looking statements as a result of developments
occurring after the date hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements with
PricewaterhouseCoopers LLP on accounting or financial
disclosure.
46
<PAGE> 47
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 Information Statement pursuant to Section 14 (f) of
the Securities Exchange Act of 1934 dated February 24, 2000,
filed as an exhibit hereto, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item concerning executive
compensation appearing in the Company's Information Statement
pursuant to Section 14 (f) of the Securities Exchange Act of
1934 dated February 24, 2000, filed as an exhibit hereto, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appearing in the Company's
Information Statement pursuant to Section 14 (f) of the
Securities Exchange Act of 1934 dated February 24, 2000, filed
as an exhibit hereto, is incorporated herein by reference.
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.
47
<PAGE> 48
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 19
Consolidated Balance Sheet 20-21
Consolidated Statement of Earnings 22
Consolidated Statement of Comprehensive Income 23
Consolidated Statement of Shareholders' Equity 24
Consolidated Statement of Cash Flows 25
Notes to Consolidated Financial Statements 26-45
2. FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants for each of the three years
in the period ended December 31, 1999 55
II. Valuation and Qualifying Accounts 56
</TABLE>
All other schedules and statements have been omitted as the
required information is inapplicable or is presented in the
financial statements or notes thereto.
b) REPORTS ON FORM 8-K
During the three months ended December 31, 1999, the Company did
not file any reports on Form 8-K.
c) EXHIBITS
Exhibit No.
3(i)-A Restated Certificate of Incorporation dated
October 29, 1986 and filed with the Secretary of
State of Delaware on November 6, 1986 (incorporated
by reference to Exhibit 4(a) in the Registration
Statement on Form S-8, No. 33-31315, filed September
28, 1989).
3(i)-B Certificate of Amendment to the Restated Certificate
of Incorporation dated April 26, 1991 (incorporated
by reference to Exhibit A in the definitive Proxy
Statement dated March 22, 1991).
48
<PAGE> 49
3(i)-C Certificate of Designation, Preferences and Rights of
Series A Seven Percent (7%) Cumulative Convertible
Preferred Stock filed in Delaware on July 2, 1997
(incorporated by reference to Exhibit 3(i)C in Form
10-K for fiscal year ended December 31, 1997).
3(i)-D Certificate of Amendment to the Certificate of
Incorporation of American Precision Industries Inc.
filed in Delaware on November 14, 1997 (incorporated
by reference to Exhibit 3(i)D in Form 10-K for fiscal
year ended December 31, 1997).
3(ii) Restated By-Laws, as amended on June 16, 1992
(incorporated by reference to Exhibits B(i) -(ii) in
Form 10-Q for fiscal quarter ended October 1, 1993).
4-A Rights Agreement between American Precision
Industries Inc. and American Securities Transfer &
Trust, Inc. dated July 24, 1998 (incorporated by
reference to Exhibit 4 in Form 8-A dated July 24,
1998).
4-B Amended and Restated Rights Agreement dated January
29, 1999, by and between American Precision
Industries Inc. and American Securities Transfer &
Trust, Inc., as Rights Agent (incorporated by
reference to Exhibit 4(A) in Form 8-K dated February
5, 1999).
4-C First Amendment dated February 17, 2000 to the
Amended and Restated Rights Agreement by and between
American Precision Industries Inc. and American
Securities Transfer & Trust, Inc.*
4-D Warrant Agreement issued to Patricof & Co. Capital
Corp. dated July 8, 1997 (incorporated by reference
to Exhibit 99 in Form 10-Q for fiscal quarter ended
July 4, 1997).
4-E Warrant Agreement Certificates No. 1 and No. 2 dated
January 1, 1998 issued to Decision Processes
International (Connecticut, Ltd.) on July 1, 1998 and
December 31, 1998, respectively (incorporated by
reference to Exhibit 4-D in Form 10-K for fiscal year
ended December 31, 1998).
10-A Credit Agreement between American Precision
Industries Inc. and Marine Midland Bank and Fleet
National Bank dated August 31, 1998 (incorporated by
reference to Exhibit 4(A) in Form 8-K dated September
8, 1998).
10-B First Amendment to Credit Agreement dated as of
January 29, 1999, b and among American Precision
Industries Inc., Marine Midland Bank and Fleet
National Bank (incorporated by reference to Exhibit
4(B) in Form 8-K dated February 5, 1999).
49
<PAGE> 50
10-C Form of Agreement relating to the Directors
Supplemental Death Benefit and Fee Continuation Plan,
as amended March 11, 1991 (incorporated by reference
to Exhibit 10A in Form 10-K for fiscal year ended
December 28, 1990).#
10-D Form of Indemnification Agreement with directors
dated February 25, 1991 (incorporated by reference to
Exhibit 10C in Form 10-K for fiscal year ended
December 28, 1990).
10-E Form of Indemnification Agreement with officers
dated February 25, 1991 (incorporated by reference to
Exhibit 10D in Form 10-K for fiscal year ended
December 28, 1990).
10-F 1989 Stock Option Plan (incorporated by reference to
Exhibit A in definitive Proxy Statement dated March
15, 1989).#
10-G Amendment to 1989 Stock Option Plan (incorporated by
reference to Exhibit C(B) in the definitive Proxy
Statement dated March 24, 1995).#
10-H Amendment No. 2 to the American Precision Industries
Inc. 1989 Employees Stock Option Plan (incorporated
by reference to Exhibit 10F in Form 10-Q for fiscal
quarter ended September 30, 1998).#
10-I 1993 Employees Stock Option Plan (incorporated by
reference to Exhibit A in the definitive Proxy
Statement dated March 22, 1993).#
10-J Amendment to 1993 Employees Stock Option Plan
(incorporated by reference to Exhibit C(A) in the
definitive Proxy Statement dared March 24, 1995).#
10-K Amendment No. 2 to the American Precision Industries
Inc. 1993 Employees Stock Option Plan (incorporated
by reference to Exhibit 10E in Form 10-Q for fiscal
quarter ended September 30, 1998).#
10-L 1995 Employees Stock Option Plan (incorporated by
reference to Exhibit A in the definitive Proxy
Statement dated March 24, 1995).#
10-M Amendment to the American Precision Industries Inc.
1995 Employees Stock Option Plan (incorporated by
reference to Exhibit 10B in Form 10-Q for fiscal
quarter ended June 30, 1998).#
10-N Amendment No. 2 to the American Precision Industries
Inc. 1995 Employees Stock Option Plan (incorporated
by reference to Exhibit 10D in Form 10-Q for fiscal
quarter ended September 30, 1998).#
50
<PAGE> 51
10-O 1995 Directors Stock Option Plan (incorporated by
reference to Exhibit B in the definitive Proxy
Statement dated March 24, 1995).#
10-P 1995 Directors Stock Option Plan, as amended and
restated (incorporated by reference to Annex C in the
definitive Proxy Statement dated March 25, 1998).#
10-Q Amendment No. 1 to the American Precision Industries
Inc. 1995 Directors Stock Option Plan (incorporated
by reference to Exhibit 10B in Form 10-Q for fiscal
quarter ended September 30, 1998).#
10-R 1997 Officers Stock Option Plan (incorporated by
reference to Annex B in the definitive Proxy
Statement dated March 25, 1998).#
10-S Amendment No. 1 to the American Precision Industries
Inc. 1997 Officers Stock Option Plan (incorporated by
reference to Exhibit 10A in Form 10-Q for fiscal
quarter ended September 30, 1998).#
10-T 1998 Employees Stock Option Plan (incorporated by
reference to Annex A in the definitive Proxy
Statement dated March 25, 1998).#
10-U Amendment No. 1 to the American Precision Industries
Inc. 1998 Employees Stock Option Plan (incorporated
by reference to Exhibit 10A in Form 10-Q for fiscal
quarter ended June 30, 1998).#
10-V Amendment No. 2 to the American Precision Industries
Inc. 1998 Employees Stock Option Plan (incorporated
by reference to Exhibit 10C in Form 10-Q for fiscal
quarter ended September 30, 1998).#
10-W Stock Option and Tandem Stock Appreciation Rights
Agreement dated June 16, 1992 between Kurt
Wiedenhaupt and American Precision Industries Inc.
(incorporated by reference to Exhibit 10(ii) in Form
10-Q for fiscal quarter ended July 3, 1992).#
10-X First Amendment to American Precision Industries Inc.
Grant of Restricted Stock and Bonus to Kurt
Wiedenhaupt dated July 1, 1996 (incorporated by
reference to Exhibit 10(iv) in Form 10-Q for fiscal
quarter ended September 27, 1996).#
10-Y Executive Employment Agreement effective as of July
1, 1997 between Kurt Wiedenhaupt and American
Precision Industries Inc. (incorporated by reference
to Exhibit 10(ii) in Form 10-Q for fiscal quarter
ended October 3, 1997).#
51
<PAGE> 52
10-Z Change in Control Agreement between American
Precision Industries Inc. and Kurt Wiedenhaupt dated
July 1, 1996 (incorporated by reference to Exhibit
10(ii) in Form 10-Q for fiscal quarter ended
September 27, 1996.)#
10-AA Amendment to Change in Control Agreement between
American Precision Industries Inc. and Kurt
Wiedenhaupt dated as of October 15, 1999
(incorporated by reference to Exhibit 38 in Schedule
14D-9 dated February 24, 2000).#
10-BB Form of Change in Control Agreement between American
Precision Industries Inc. and James W. Bingel, Bruce
McH. Kirchner, Craig J. Van Tine, Richard S. Warzala
and Bradley Holcomb (incorporated by reference to
Exhibit 10(i) in Form 10-Q for fiscal quarter ended
September 27, 1996).#
10-CC Amendment to Change in Control Agreement between
American Precision Industries Inc. and Bruce McH.
Kirchner dated as of October 15, 1999 (incorporated
by reference to Exhibit 40 in Schedule 14D-9 dated
February 24, 2000).#
10-DD Amendment to Change in Control Agreement between
American Precision Industries Inc. and Craig J. Van
Tine dated as of October 15, 1999 (incorporated by
reference to Exhibit 41 in Schedule 14D-9 dated
February 24, 2000).#
10-EE Amendment to Change in Control Agreement between
American Precision Industries Inc. and Richard S.
Warzala dated as of October 15, 1999 (incorporated by
reference to Exhibit 42 in Schedule 14D-9 dated
February 24, 2000).#
10-FF Change in Control Agreement between American
Precision Industries Inc. and Deborah K. Pawlowski
dated as of October 15, 1999 (incorporated by
reference to Exhibit 43 in Schedule 14D-9 dated
February 24, 2000).#
10-GG Change in Control Agreement between American
Precision Industries Inc. and Mark E. Wood dated as
of October 15, 1999 (incorporated by reference to
Exhibit 44 in Schedule 14D-9 dated February 24,
2000).#
10-HH Executive Supplemental Retirement Plan (as restated)
between American Precision Industries Inc. and Kurt
Wiedenhaupt dated July 1, 1996 (incorporated by
reference to Exhibit 10(v) in Form 10-Q for fiscal
quarter ended September 27, 1996).#
52
<PAGE> 53
10-II Amendment to Executive Supplemental Retirement Plan
between American Precision Industries Inc. and Kurt
Wiedenhaupt dated as of February 19, 1999 and
Schedule A thereto (incorporated by reference to
Exhibit 10-A in Form 10-Q for fiscal quarter ended
June 30, 1999).#
10-JJ Executive Supplemental Retirement Plan (as restated)
between American Precision Industries Inc. and Kurt
Wiedenhaupt, first dated as of July 1, 1992, as
amended and restated as of July 1, 1996, and Schedule
A thereto as amended effective February 19, 1999
(incorporated by reference to Exhibit 10-B in Form
10-Q for fiscal quarter ended June 30, 1999).#
10-KK Life Insurance Split-Dollar Agreement (as restated)
between American Precision Industries Inc. and Kurt
Wiedenhaupt dated July 1, 1996 (incorporated by
reference to Exhibit 10(vii) in Form 10-Q for fiscal
quarter ended September 27, 1996).#
10-LL Amendment to Life Insurance Split-Dollar Agreement
between American Precision Industries Inc. and Kurt
Wiedenhaupt dated as of February 19, 1999 and
Schedule A thereto (incorporated by reference to
Exhibit 10-C in Form 10-Q for fiscal quarter ended
June 30, 1999).#
10-MM Life Insurance Split-Dollar Agreement (Second
Restatement) between American Precision Industries
Inc. and Kurt Wiedenhaupt, first dated August 26,
1992, as amended and restated as of February 19,
1999, and Schedule A thereto (incorporated by
reference to Exhibit 10-D in Form 10-Q for fiscal
quarter ended June 30, 1999).#
10-NN Executive Supplemental Retirement Plan (as restated)
between American Precision Industries Inc. and James
W. Bingel dated as of October 15, 1999 (incorporated
by reference to Exhibit 51 in Schedule 14D-9 dated
February 24, 2000).#
10-OO Amendment to Executive Supplemental Retirement Plan
between American Precision Industries Inc. and James
W. Bingel dated as of December 1, 1999 (incorporated
by reference to Exhibit 52 in Schedule 14D-9 dated
February 24, 2000).#
10-PP Executive Supplemental Retirement Plan (as restated)
between American Precision Industries Inc. and Bruce
McH. Kirchner dated as of October 15, 1999
(incorporated by reference to Exhibit 53 in Schedule
14D-9 dated February 24, 2000).#
10-QQ Executive Supplemental Retirement Plan (as restated)
between American Precision Industries Inc. and Craig
J. Van Tine dated as of October 15, 1999
(incorporated by reference to Exhibit 54 in Schedule
14D-9 dated February 24, 2000).#
53
<PAGE> 54
10-RR Executive Supplemental Retirement Plan (as restated)
between American Precision Industries and Richard S.
Warzala first dated as of June 1, 1983, as amended
and restated as of January 4, 1997 (incorporated by
reference to Exhibit 55 in Schedule 14D-9 dated
February 24, 2000).#
10-SS Amendment to Executive Supplemental Retirement Plan
between American Precision Industries Inc. and
Richard S. Warzala dated as of April 24, 1998
(incorporated by reference to Exhibit 56 in Schedule
14D-9 dated February 24, 2000).#
10-TT Form of Life Insurance Split-Dollar Agreement between
American Precision Industries Inc. and James J.
Bingel, Bruce McH. Kirchner and Richard S. Warzala
(incorporated by reference to Exhibit 10- D(ii) in
Form 10-K for fiscal year ended December 31, 1998).#
10-UU Amended and Restated Stock Purchase Agreement by and
among InterScan Holding Ltd., Portescap and API
Portescap Inc. and American Precision Industries Inc.
dated July 3, 1997 (incorporated by reference to
Appendix A to definitive Proxy Statement dated
October 9, 1997).
10-VV Asset Purchase Agreement by and among Vatterledens
Invest AB and ELMO Industrier AB and American
Precision Industries Inc. and API ELMO AB, dated
January 28, 1999 (incorporated by reference to
Exhibit 2 in Form 8-K dated February 5, 1999).
21 Subsidiaries of the Registrant (incorporated by
reference to Exhibit 21 in Form 10-K for fiscal year
ended December 31, 1998).
23 Consents of independent accountants*
27 Financial Data Schedule*
99 Registrant's Information Statement pursuant to
Section 14 (f) of the Securities Exchange Act of 1934
dated February 24, 2000 (incorporated by reference to
the Information Statement filed with the Securities
and Exchange Commission on February 25, 2000).
--------------------------------
* Documents filed herewith
# Management contract or compensatory plan or arrangement
54
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
AMERICAN PRECISION INDUSTRIES INC.
Our report on the consolidated financial statements of American
Precision Industries Inc. as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31,
1999, is included on page 19 of this Form 10-K. In connection
with our audits of such financial statements, we have also
audited the related financial statement schedule listed on page
48 of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included
therein.
PricewaterhouseCoopers LLP
Buffalo, New York
February 14, 2000
55
<PAGE> 56
AMERICAN PRECISION INDUSTRIES INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(Dollars in thousands) Amounts Reserve at
Balance at charged Deductions Date of Balance at
beginning of (credited) to from Business end of
Description year expense reserves Acquisitions year
----------- ------------ ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for inventory reserves $ 3,907 $ 1,705 $(1,931) $ 1,505 $ 5,186
Year ended December 31, 1998:
Allowance for inventory reserves $ 6,910 $(1,454) $(1,549) $ -- $ 3,907
Year ended December 31, 1997:
Allowance for inventory reserves $ 2,330 $ 1,005 $(2,043) $ 5,618 $ 6,910
</TABLE>
56
<PAGE> 57
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 28, 2000 By: /s/ Kurt Wiedenhaupt
-------------------------
Kurt Wiedenhaupt
President and Director
March 28, 2000 By: /s/ Bruce McH. Kirchner
----------------------------
Bruce McH. Kirchner
Chief Financial Officer
March 28, 2000 By:/s/ Mark E. Wood
-----------------------
Mark E. Wood
Corporate Controller
57
<PAGE> 58
SIGNATURES
Pursuant to the requirement 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.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Kurt Wiedenhaupt March 28, 2000
----------------------------------------------------- --------------------
Kurt Wiedenhaupt President, CEO and
Chairman of the Board
/s/ John M. Albertine March 28, 2000
----------------------------------------------------- --------------------
John M. Albertine Director
/s/ Holger Hjelm March 28, 2000
----------------------------------------------------- --------------------
Holger Hjelm Director
/s/ Bernard J. Kennedy March 28, 2000
----------------------------------------------------- --------------------
Bernard J. Kennedy Director
/s/ Douglas J. MacMaster, Jr March 28, 2000
----------------------------------------------------- --------------------
Douglas J. MacMaster, Jr. Director
/s/ Klaus K. Oertel March 28, 2000
----------------------------------------------------- --------------------
Klaus K. Oertel Director
/s/ Victor A. Rice March 28, 2000
----------------------------------------------------- --------------------
Victor A. Rice Director
/s/ Jerre L. Stead March 28, 2000
----------------------------------------------------- --------------------
Jerre L. Stead Director
</TABLE>
58
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<S> <C>
4-C First Amendment to the Amended and Restated Rights Agreement
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
</TABLE>
59
<PAGE> 1
EXHIBIT 4-C
FIRST AMENDMENT
TO THE
AMENDED AND RESTATED RIGHTS AGREEMENT
This FIRST AMENDMENT (the "Amendment"), dated as of the 17th day of
February 2000, amends the Amended and Restated Rights Agreement (the "Rights
Agreement"), dated as of January 29, 1999 by and between American Precision
Industries Inc., a Delaware corporation (the "Company"), and American Securities
Transfer & Trust, Inc., a Colorado corporation (the "Rights Agent"). All terms
not otherwise defined herein shall have the meanings given such terms in the
Rights Agreement.
WHEREAS, the Board of Directors of the Company has approved and adopted
an Agreement and Plan of Merger (the "Merger Agreement"), dated as of February
15, 2000, by and among the Company, Danaher Corporation, a Delaware corporation
("Parent"), and Alpha Acquisition I Corp., a Delaware corporation and
wholly-owned subsidiary of Parent (the "Purchaser");
WHEREAS, the Merger Agreement contemplates certain amendments to the
Rights Agreement;
WHEREAS, pursuant to Section 26 of the Rights Agreement, the Company
may, subject to certain limitations, amend any term, definition or other
provision of the Rights Agreement without the approval of any holders of Rights
Certificates;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, the Company and the Rights Agent hereby agree as
follows:
1. Amendment.
a. Section 1(a) of the Rights Agreement is hereby amended by adding the
following language before the proviso in the first sentence thereof:
"or (vi) Danaher Corporation, a Delaware corporation ("Danaher"), or
any of its Affiliates or Associates, provided, however, that for
purposes of this Agreement, Associates of Danaher or its Affiliates
shall not be deemed to beneficially own any shares of Common Stock that
are beneficially owned by Danaher or its Affiliates;"
60
<PAGE> 2
b. Section 1(b) of the Rights Agreement is hereby amended by adding the
following language at the end of the first sentence thereof:
", and provided further, that neither Danaher nor any Associate or
Affiliate of Danaher is an Adverse Person for purposes of this
Agreement."
c. Section 1(o) of the Rights Agreement is hereby amended by adding the
following language at the end of the first sentence thereof:
", and provided further, that a "Triggering Event" shall not include
the acquisition or ownership of Common Stock by Danaher or any of its
Affiliates or Associates or any of the transactions contemplated by the
Agreement and Plan of Merger, dated as of February 15, 2000, by and
among the Company, Danaher and Alpha Acquisition I Corp., a Delaware
corporation and a wholly-owned subsidiary of Danaher (the "Merger
Agreement") ."
d. Section 7(a) of the Rights Agreement is hereby amended by removing
the following parenthetical at the end of the first sentence "(the earlier of
(i) and (ii) being herein referred to as the "Expiration Date")" and adding the
following language in lieu thereof:
", or (iii) immediately prior to the Effective Time (as defined in the
Merger Agreement) (the earlier of (i), (ii) and (iii) being herein
referred to as the "Expiration Date")."
e. Section 13(a) of the Rights Agreement is hereby amended by adding
the following language to the end of the first parenthetical in the first
sentence:
"or other than pursuant to the Merger Agreement"
2. Choice of Law. This Amendment will be governed by and construed in
accordance with the laws of the State of Delaware.
3. Counterparts. This Amendment may be executed in any number of
counterparts and each of such counterparts will for all purposes be deemed to be
an original, and all such counterparts will together constitute but one and the
same instrument.
4. Severability. If any term or provision of this Amendment is held by
a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms and provisions of this Amendment will
in no way be affected, impaired or invalidated.
5. Existing Terms. The existing terms and conditions of the Rights
Agreement will remain in full force and effect except as such terms and
conditions are specifically amended or conflict with the terms of this
Amendment.
61
<PAGE> 3
6. Effective Date. This Amendment will be effective on the date hereof,
provided, however, that if the Merger Agreement is terminated in accordance with
its terms, this Amendment will immediately and without any further action by the
Company, the Rights Agent or any other Person, be rescinded in full and the
Rights Agreement will immediately, and without any further action by the
Company, the Rights Agent or any other Person, be reinstated to its terms and
conditions as in effect prior to the execution hereof by the Company and the
Rights Agent.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed and delivered by its duly authorized officer on the day
and year first above written.
AMERICAN PRECISION INDUSTRIES INC.
By: /s/ Kurt Wiedenhaupt
--------------------------------------------
Name: Kurt Wiedenhaupt
Title: President and Chief Executive Officer
Attest:
By: /s/ James J. Tanous
-------------------------
Name: James J. Tanous
Title: Secretary
AMERICAN SECURITIES TRANSFER & TRUST, INC.
By: /s/ Laura Sisneros
--------------------------------------------
Name: Laura Sisneros
Title: Vice President/Trust Officer
/s/ Steve King
--------------------------------------------
Steve King
Sr. Vice President
Attest:
By: /s/ Jennifer A. Owens
-------------------------------
Name: Jennifer A. Owens
Title: Corporate Trust Officer
62
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
AMERICAN PRECISION INDUSTRIES INC. (Delaware)
API Heat Transfer Inc. (New York)
API Schmidt-Bretten Beteiligungs GmbH (Germany)
API Schmidt-Bretten Verwaltung GmbH (Germany)
Schmidt-Bretten GmbH & Co. KG (Germany)
Schmidt-Bretten Nederland B.V. (Netherlands)
API Motion Inc. (New York)
API Gettys Inc. (Wisconsin)
API Harowe (St. Kitts) Ltd.
API Delevan Inc. (New York)
API Elmo AB (Sweden)
API Portescap (Switzerland)
API Portescap International (Switzerland)
API Portescap Deutschland GmbH (Germany)
API Portescap Scandinavia AB (Sweden)
API Portescap Polska Sp.zo.o (Poland)
API Portescap France SA (France)
API Portescap Japan Ltd. (Japan)
API Positran Limited (England)
API Portescap (UK) Limited (England)
Note: API-FS Corporation, API of Canada Inc., American Precision Industries
Inc. (UK) Ltd., API Development Corporation and Portescap U.S. Inc. are
omitted because in the aggregate they do not constitute a "significant
subsidiary". The less than 50% ownership interests in joint ventures
Schmidt-Bretten France S.A.R.L. (France), Schmidt-Bretten Espana S.L.
(Spain) and Schmidt-Bretten Romania S.R.L. (Romania) are also excluded
since they do not constitute a "significant subsidiary".
Schmidt-Bretten GmbH & Co. KG is a partnership owned by API
Schmidt-Bretten Beteiligungs GmbH (99.9%) and API Schmidt-Bretten
Verwaltung GmbH (.1%).
63
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of American Precision Industries Inc. on Form S-8 (Nos.
33-31315, 33-61734, 33-71839, and 333-56091) of our reports dated
February 14, 2000, on our audits of the consolidated financial
statements and financial statement schedule of American Precision
Industries Inc. as of December 31, 1999 and 1998, and for each of the
three years in the period ended December 31, 1999, which reports are
included on pages 19 and 55 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Buffalo, New York
March 27, 2000
64
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,227
<SECURITIES> 0
<RECEIVABLES> 37,721
<ALLOWANCES> 864
<INVENTORY> 41,266
<CURRENT-ASSETS> 89,632
<PP&E> 106,293
<DEPRECIATION> 40,905
<TOTAL-ASSETS> 188,370
<CURRENT-LIABILITIES> 48,318
<BONDS> 53,562
0
26,156
<COMMON> 5,259
<OTHER-SE> 49,675
<TOTAL-LIABILITY-AND-EQUITY> 188,370
<SALES> 236,333
<TOTAL-REVENUES> 236,333
<CGS> 167,690
<TOTAL-COSTS> 167,690
<OTHER-EXPENSES> 5,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,839
<INCOME-PRETAX> 12,351
<INCOME-TAX> 4,211
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,140
<EPS-BASIC> .86
<EPS-DILUTED> .85
</TABLE>
