UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1994
Commission file number 1-4416
SPS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 23-1116110
(State of incorporation) (I.R.S. Employer
101 Greenwood Avenue Identification No.)
Suite 470 19046
Jenkintown, Pennsylvania (Zip Code)
(Address of principal executive offices)
(215) 517-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
The number of shares of Registrant's Common Stock
outstanding on August 1, 1994 was 5,108,148.
<PAGE>2
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
PART 1
FINANCIAL INFORMATION
Item 1. Index to Financial Statements
Condensed Statements of Consolidated Operations -
Three and Six Months Ended June 30, 1994
and 1993 (Unaudited) 3
Condensed Consolidated Balance Sheets -
June 30, 1994 and December 31, 1993
(Unaudited) 4, 5
Condensed Statements of Consolidated Cash Flows -
Six Months Ended June 30, 1994 and 1993
(Unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
<PAGE>3
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited-Thousands of dollars, except share data)
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Net sales $ 87,865 $ 85,459 $ 169,446 $ 172,742
Cost of goods sold 73,052 70,635 141,605 143,797
Gross profit 14,813 14,824 27,841 28,945
Selling, general and
administrative expense 10,789 11,932 21,609 23,315
Unusual items:
Restructuring credit (400) (3,100) (900)
Loss on disposal 6,600
Operating earnings 4,024 3,292 2,732 6,530
Other income (expense):
Interest income 71 73 176 294
Interest expense (1,679) (1,464) (3,397) (2,998)
Equity in earnings (loss)
of affiliates 568 7 778 (143)
Other, net 66 210 521 505
(974) (1,174) (1,922) (2,342)
Earnings before income taxes 3,050 2,118 810 4,188
Provision for income taxes 950 740 1,250 1,180
Net earnings (loss) $ 2,100 $ 1,378 $ (440) $ 3,008
Net earnings (loss) per share $ .41 $ .27 $ (.09) $ .59
Cash dividends per share $ .32 $ .64
Average shares outstanding 5,107,934 5,105,429 5,107,469 5,105,429
See accompanying notes to condensed consolidated financial statements.
The 1993 amounts have been reclassified (see Note 3).
<PAGE>4
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars)
June 30, December 31,
1994 1993
Assets
Current assets
Cash and cash equivalents $ 7,044 $ 6,852
Accounts and notes receivable,
less allowance for doubtful
receivables of $1,288 (1993-$1,185) 56,912 48,968
Inventories 81,383 80,604
Deferred income taxes 13,585 13,667
Prepaid expenses 3,133 2,300
Net assets held for sale 8,619 8,619
Total current assets 170,676 161,010
Investments in affiliates 13,242 12,475
Property, plant and equipment, net of
accumulated depreciation of $95,543
(1993-$93,214) 83,793 86,958
Other assets 27,177 25,536
Total assets $ 294,888 $ 285,979
See accompanying notes to condensed consolidated financial statements.
<PAGE>5
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars)
June 30, December 31,
1994 1993
Liabilities and shareholders' equity
Current liabilities
Notes payable $ 5,079 $ 7,339
Accounts payable 22,884 19,657
Accrued expenses 36,113 38,885
Income taxes payable 830 646
Total current liabilities 64,906 66,527
Deferred income taxes 9,553 9,445
Long-term debt 86,554 81,828
Retirement obligations 27,571 25,352
Shareholders' equity
Preferred stock, par value $1 per share,
Authorized 400,000 shares, Issued none
Common stock, par value $1 per share,
Authorized 30,000,000 shares,
Issued 6,361,606 shares 6,362 6,362
Additional paid-in-capital 59,726 59,704
Retained earnings 60,076 60,516
Minimum pension liability (1,780) (1,780)
Common stock in treasury, at cost
1,253,458 shares in 1994 (1,254,977
shares in 1993) (10,132) (10,144)
Cumulative translation adjustments (7,948) (11,831)
Total shareholders' equity 106,304 102,827
Total liabilities and
shareholders' equity $ 294,888 $ 285,979
See accompanying notes to condensed consolidated financial statements.
<PAGE>6
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited-Thousands of dollars)
Six Months Ended
June 30,
1994 1993
Net cash provided (used) by operating
activities $ (916) $ 4,309
Cash flows provided (used) by investing
activities:
Additions to property, plant and equipment (5,653) (6,249)
Proceeds from divestitures 2,123 1,031
Proceeds from sale of property,
plant and equipment 1,152 74
Other, net (86) (7)
Net cash used by investing activities (2,464) (5,151)
Cash flows provided (used) by financing
activities:
Proceeds from borrowings 11,560 23,900
Reduction of borrowings (8,326) (14,406)
Payments of cash dividends (3,267)
Other, net 34
Net cash provided by financing activities 3,268 6,227
Effect of exchange rate changes on cash 304 (133)
Net increase in cash and cash equivalents 192 5,252
Cash and cash equivalents at
beginning of period 6,852 2,879
Cash and cash equivalents at
end of period $ 7,044 $ 8,131
See accompanying notes to condensed consolidated financial statements.
<PAGE>7
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited-Thousands of Dollars)
1. Financial Statements
In the opinion of the Company's management, the
accompanying unaudited, condensed consolidated financial
statements contain all adjustments necessary to present
fairly the financial position as of June 30, 1994, the
results of operations for the three and six-month periods
ended June 30, 1994 and 1993, and cash flows for the six-
month periods ended June 30, 1994 and 1993. The December
31, 1993 condensed balance sheet data was derived from
audited financial statements, but does not include all
disclosures required by generally accepted accounting
principles. The accompanying financial statements contain
only normal recurring adjustments except those related to
the unusual items (see Note 3). All financial information
has been prepared in conformity with the accounting
principles reflected in the financial statements included in
the 1993 Annual Report filed on Form 10-K applied on a
consistent basis.
2. Inventories
June 30, December 31,
1994 1993
Finished goods $ 35,125 $ 37,323
Work-in-process 18,587 17,115
Raw materials
and supplies 27,671 26,166
$ 81,383 $ 80,604
3. Unusual Items
In 1994, the Company sold its investment in its
subsidiary, Ferre Plana, S.A., located in Barcelona, Spain.
The loss on disposal of $6.6 million is included in the
condensed statement of consolidated operations as an unusual
charge. This disposal charge was for the loss on the sale
of Ferre Plana's net assets, including the write-off of the
related intangible assets and cumulative translation
adjustment account.
Included in the 1993 restructuring charge was a
provision for the liquidation of the Assembly Systems
Division, a fastener segment product line. During the first
quarter of 1994, the Company entered into an agreement to
sell this product line. As a result of this modification of
<PAGE>8
the restructuring plan and the related change in estimate,
and because actual restructuring costs have been lower than
estimated costs, the Company recorded a $3.1 million credit
for the reversal of excess reserves associated with the 1993
restructuring charge.
During the fourth quarter of 1993, the restructuring
plan was modified to retain certain businesses previously
held for sale. As a result of this modification, the
condensed statement of consolidated operations for the three
and six-month periods ended June 30, 1993 has been
reclassified for comparative purposes.
4. Income Taxes
For the six months ended June 30, 1994, the effective
tax rate is higher than the statutory tax rate due to the
inability to recognize a full tax benefit on the disposal
loss of the Company's subsidiary in Spain. The Company's
effective tax rate for the six months ended June 30, 1993 is
lower than the statutory tax rate due to the tax benefits
realized from the settlement of a long-term receivable in
the first quarter of 1993.
5. Earnings Per Share
Per share data was calculated using the weighted
average number of shares outstanding during the periods.
Common share equivalents in the form of stock options have
been excluded from the calculations as their dilutive effect
is not material, or their effect is anti-dilutive.
6. Cumulative Translation Adjustments
The following summarizes the changes in translation
adjustments during the six-month period ended June 30, 1994:
Beginning of period $(11,831)
Changes during period:
Working capital 2,300
Property, plant and equipment 1,000
Other, net 583
End of period $ (7,948)
<PAGE>9
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Introduction
The Company's operating results, excluding the effects of
unusual items, continue to show improvement over both the prior
quarter and the corresponding quarter of 1993. Incoming orders
and sales are above prior year levels in both of the Company's
business segments. The operating profit improvement reflects the
impact of the sale of unprofitable business units as well as the
cost reduction actions implemented in the first quarter of 1994.
Sales and Operating Earnings by Segment
(Unaudited-Thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Net Sales:
Fasteners $ 60,543 $ 60,827 $118,674 $123,213
Materials 27,322 24,632 50,772 49,529
$ 87,865 $ 85,459 $169,446 $172,742
Operating Earnings:
Fasteners $ 1,246 $ 1,654 $ (2,082) $ 2,915
Materials 2,778 1,638 4,814 3,615
$ 4,024 $ 3,292 $ 2,732 $ 6,530
Net Sales
Net sales in the second quarter of 1994 were $87.9 million,
compared to $85.5 million in the second quarter of 1993. Net
sales for the six months were $169.4 million, compared to $172.7
million for the same period in 1993. Excluding 1993 sales of the
Assembly Systems Division and the fastener operation in Spain
(both businesses have been sold by the Company), net sales
increased in the second quarter by $7.2 million, or 8.9 percent,
and by $5.7 million, or 3.5 percent for the six-month period.
Excluding 1993 sales of businesses sold, fastener segment
sales increased $4.5 million for the second quarter and for the
six-month period. The $1.7 million increase in aerospace
fastener sales for the second quarter brought 1994 sales to 1993
levels for the six-month period. Sales in the transportation and
industrial fastener markets increased by $2.8 million for the
second quarter and $4.5 million for the six-month period. This
increase is due to the strengthening automotive business in the
United States and England.
<PAGE>10
Materials segment sales increased by $2.7 million in the
second quarter of 1994 and by $1.2 million for the six-month
period. The increase in sales is attributed to the strong demand
for magnetic materials from the domestic automobile and anti-
theft security markets and the increasing demand for cobalt-based
medical and stainless steel alloys and proprietary superalloys
from the investment casting market. Installation of new air melt
processing equipment was completed in April 1994 and has
increased capacity and improved customer delivery time.
Operating Earnings
Excluding all unusual items, operating earnings for the
fastener segment remained level for the second quarter and
decreased $600,000 for the six-month period when compared to the
same periods in 1993. The benefit of avoiding losses generated
in 1993 from the Assembly Systems Division and the manufacturing
operations in Spain (these businesses were sold) was offset by
additional manufacturing cost caused by certain material and
equipment problems experienced in the Company's Cleveland plant.
The Company has ordered new manufacturing equipment, upgraded
management personnel and expanded employee training programs to
improve future performance at the Cleveland plant.
In the materials segment, second quarter 1994 operating
earnings of $2.8 million, or 10.2 percent of sales, were up from
$1.6 million, or 6.6 percent of sales in the second quarter of
1993. Operating earnings for the six-month period of 1994 were
$4.8 million, or 9.5 percent of sales, compared to the same
period in 1993 of $3.6 million, or 7.3 percent of sales. The
increase in earnings is attributed to higher sales of magnetic
materials, better product mix of alloy sales and savings from an
overhead reduction program.
Other Expense
Interest expense increased $215,000 in the second quarter
and $400,000 for the six-month period when compared to the same
periods in 1993. The increase in interest expense is the result
of higher levels of corporate debt and an increase in interest
rates. The magnetic materials joint venture in Adelanto,
California and the Company's Brazilian affiliate reported net
earnings in 1994 compared to net losses in 1993. As a result,
the Company's equity in earnings (loss) of affiliates improved by
$560,000 in the second quarter and $920,000 in the six-month
period.
Income Taxes
For the six months ended June 30, 1994, the effective tax
rate is higher than the statutory tax rate due to the inability
to recognize a full tax benefit on the disposal loss of the
<PAGE>11
Company's subsidiary in Spain. The Company's effective tax rate
for the six months ended June 30, 1993 is lower than the
statutory tax rate due to the tax benefits realized from the
settlement of a long-term receivable in the first quarter of
1993.
Earnings
Net earnings for the second quarter of 1994 were $2.1
million, or $.41 per share, compared to $1.4 million, or $.27 per
share for the second quarter of 1993. The net loss for the six
months ended June 30, 1994 is $440,000, or $.09 per share,
compared to net earnings of $3 million, or $.59 per share for the
same period in 1993. The net unusual charge in 1994 of $3.5
million compares to a $900,000 restructuring credit in 1993 and
accounts for the net loss in 1994.
Gross profit did not change in the second quarter but
decreased $1.1 million in the six months ended June 30, 1994,
compared to the same periods in 1993. Other results of the
quarter and six months were lower selling, general and
administrative cost due to a reduction in the non-direct work
force and a net reduction to other expense.
Orders and Backlog
Incoming orders for the second quarter of 1994 were $94.9
million compared to $84.1 million in 1993, a 12.8 percent
increase. Incoming orders for the six months ended June 30, 1994
were $187.2 million compared to $179 million for the same period
in 1993, a 4.6 percent increase. Excluding 1993 orders for the
Assembly Systems Division and the Company's subsidiary in Spain,
orders increased in all major markets for the quarter and six-
month period. Backlog at June 30, 1994 was $101.9 million,
compared to $81 million on the same date a year ago.
Unusual Items
In 1994, the Company sold its investment in its subsidiary,
Ferre Plana, S.A., located in Barcelona, Spain. Ferre Plana,
S.A., which manufactured commodity industrial fasteners, had lost
$9.4 million since it was acquired in 1990, and would have
incurred additional losses and required a substantial cash
investment in 1994. The loss on disposal of $6.6 million is
included in the condensed statement of consolidated operations as
an unusual charge. This disposal charge was for the loss on the
sale of Ferre Plana's net assets, including the write-off of the
related intangible assets and cumulative translation adjustment
account.
Included in the 1993 restructuring charge was a provision
for the liquidation of the Assembly Systems Division, a fastener
segment product line. The Assembly Systems Division, which
<PAGE>12
manufactured computer-controlled fastener tightening equipment,
had accumulated operating losses totaling $11.6 million over the
past five years. During the first quarter of 1994, the Company
entered into an agreement to sell this product line. As a result
of this modification of the restructuring plan and the related
change in estimate, and because actual restructuring costs have
been lower than estimated costs, the Company recorded a $3.1
million credit for the reversal of excess reserves associated
with the 1993 restructuring charge.
Liquidity and Capital Resources
Management considers liquidity to be the ability to generate
adequate amounts of cash to meet its needs and capital resources
to be the resources from which such cash can be obtained,
principally from operating and external sources. The Company
believes that capital resources available to it will be
sufficient to meet the needs of its business, both on a short-
term and long-term basis.
Cash flow provided or used by operating activities,
investing activities and financial activities is summarized in
the condensed statements of consolidated cash flows. Net cash
used by operating activities for the first six months of 1994 of
$916,000 compares unfavorably to net cash provided by operating
activities for the same period in 1993 of $4.3 million. The
unfavorable comparison results from cash expenditures in 1994 of
$5.8 million to fund severance payments and other costs related
to the 1993 restructuring plan and an increase in working capital
in 1994 to support the higher business levels.
The decrease in the cash used by investing activities is
attributed to the 1994 net proceeds from the sale of the Assembly
Systems Division and the Company's aircraft. The Company spent
$5.6 million for capital expenditures in the first six months of
1994 and has budgeted $14.3 million for the full year of 1994, a
$1.3 million increase from the amount reported on form 10-K for
the year ended December 31, 1993.
The Company's total debt to equity ratio was 86 percent at
June 30, 1994, compared to 87 percent at December 31, 1993.
Total debt was $91.6 million at June 30, 1994 and $89.2 million
at December 31, 1993. As of June 30, 1994, the Company is
permitted to borrow an additional $11 million under its loan
agreements. As a result of the Company's decision to dispose of
its investment in its subsidiary in Spain, the Company amended
certain debt agreements to modify certain financial covenants
effective March 30, 1994. During the second quarter, the Company
increased its borrowing capacity under the bank credit agreement
by $5 million, increasing the total available borrowings under
the facility to $55 million. Additionally, the Company obtained
a commitment to finance $2.5 million of equipment under operating
leases.
<PAGE>13
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 23, 1994.
(b) The name of each director elected at the Annual Meeting as
the Company's two Class II directors, each to hold office
until the 1997 Annual Meeting of Shareholders, is as
follows:
Dr. John F. Lubin
Raymond P. Sharpe
The name of each other director whose term of office
continued after the meeting is as follows:
Charles W. Grigg
Howard T. Hallowell III
Paul F. Miller, Jr.
Eric M. Ruttenberg
Harry J. Wilkinson
(c) The results of the election of directors with respect to
each nominee for office was as follows:
For Withheld
Dr. John F. Lubin 3,604,877 15,706
Raymond P. Sharpe 3,603,704 16,879
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Dilution (Anti-dilution) of Earnings Per
Share Resulting from Common Stock Equivalents.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1994.
<PAGE>14
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SPS TECHNOLOGIES, INC.
(Registrant)
Date: August 10, 1994 /s/William M. Shockley
William M. Shockley
Controller
Mr. Shockley is signing on behalf of the registrant and as the
chief financial officer of the registrant.
<PAGE>15
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit 11 - Computation of Dilution (Anti-dilution)
of Earnings per Share Resulting from
Common Stock Equivalents
Exhibit 11
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
Computation of Dilution (Anti-dilution) of Earnings Per Share
Resulting from Common Stock Equivalents
(Thousands of dollars, except share data)
The following calculation is submitted in accordance with the Securities
Exchange Act of 1934 although not required by Opinion No. 15 of the
Accounting Principles Board as it results in dilution of less than 3%,
or is anti-dilutive:
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Net earnings (loss) $ 2,100 $ 1,378 $ (440) $ 3,008
Weighted average
number of shares
outstanding during
period 5,107,934 5,105,429 5,107,469 5,105,429
Weighted average
number of maximum
shares subject to
exercise under
outstanding stock
options at end of
period 369,791 258,182 330,291 201,414
5,477,725 5,363,611 5,437,760 5,306,843
Less treasury shares
assumed purchased
with proceeds from
assumed exercise of
outstanding options
(a) 338,546 223,490 310,438 180,906
Weighted average
number of common
shares and equivalent
common shares out-
standing after assumed
exercise of options 5,139,179 5,140,121 5,127,322 5,125,937
Pro forma earnings (loss)
per share based on above
assumptions (b) $ .41 $ .27 $ (.09) $ .59
Earnings (loss) per share
as reported $ .41 $ .27 $ (.09) $ .59 <PAGE>
<PAGE>2
(a) All options are exercisable under a nonqualified plan. The proceeds
from assumed exercise of options aggregated $8,087,863 and $7,165,089
in the three and six-month periods ended June 30, 1994 respectively;
the proceeds from assumed exercises aggregated $5,922,484 and
$4,501,464 in the three and six-month periods ended June 30, 1993,
respectively. The proceeds and number of treasury shares assumed
purchased were determined on the most likely exercise assumption.
(b) Pro forma earnings per share assuming full dilution are not presented
separately since there would be no additional dilutive effect, or the
effect would be anti-dilutive.
