<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number 1-4416
December 31, 1994
_______________________________________________________________________________
SPS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 23-1116110
(State of incorporation) (I.R.S. Employer Identification No.)
101 Greenwood Avenue, Suite 470 19046
Jenkintown, Pennsylvania (Zip Code)
(Address of principal executive offices)
(215) 517-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Title of Each Class Name of Each Exchange
Common Stock, Par Value $1.00 on Which Registered
Per Share New York Stock Exchange
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]
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 aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 6, 1995 was approximately $158,498,480.
The number of shares of Registrant's Common Stock outstanding on March 6,
1995 was 5,650,333.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1994 Annual Report to Shareholders of the Registrant are
incorporated by reference in Parts, I, II and IV of this Report. Portions of
the Definitive Proxy Statement of Registrant, if filed with the Securities
and Exchange Commission within 120 days after December 31, 1994, are
incorporated by reference in Part III of this report. To the extent not so
filed, such information will be provided on a Form 10-K/A filed with the
Securities and Exchange Commission.
<PAGE>
PART I
ITEM 1. BUSINESS (Thousands of dollars)
SPS Technologies, Inc. and subsidiaries (the Company) was incorporated in
Pennsylvania in 1903. The Company is engaged in the design, manufacture and
marketing of high-strength precision mechanical fasteners and precision
components (fasteners); and superalloys in ingot form and magnetic materials
(materials).
In 1994, the Company completed programs that reduced the Company's cost
structure and improved its operating performance. The Company completed a 10
percent reduction in its non-direct workforce, which included significant
reductions in corporate and executive staff. In addition, the Company
relocated its corporate offices to a smaller leased facility and sold its
corporate headquarters in Newtown, Pennsylvania and the Company aircraft. The
Company also exited certain historically unprofitable product lines of its
fastener segment. Additional information regarding the restructuring plan is
provided in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in Note 3 to the Company's
Consolidated Financial Statements on pages 11 and 12 in the 1994 Annual
Report to Shareholders and is incorporated herein by reference.
The Company is multinational in operation. In addition to nine
manufacturing plants in the United States, it operates six manufacturing
facilities in three different countries: the United Kingdom, Ireland and
Australia. The Company also has a 50 percent interest in a manufacturing
operation in Adelanto, California, and has minority interests in
manufacturing operations in Brazil and India. Marketing operations are
carried on by subsidiaries and an affiliate in five other countries.
The Company sells directly to original equipment manufacturers and
industrial, commercial and governmental users, and also sells through
independent stocking distributors and dealers. There were no changes in these
methods of distribution during 1994.
Principal fastener markets include aerospace, machine tool and industrial
machinery, automotive, and off-highway equipment. Principal markets for
materials include the precision investment casting, powdered metal,
aerospace, medical equipment, automotive, computer and communications
industries.
Principal fastener products are SPS(Registered Trademark) aerospace
fasteners, MULTIPHASE(Registered Trademark) alloy fasteners, and other
aerospace fasteners; UNBRAKO(Registered Trademark) brand socket screws, hex
keys, dowel pins, shaft collars, spring pins and pressure plugs; engineered
fasteners for gasoline and diesel engines, other critical automotive
applications, and off-highway equipment and HI-LIFE(Registered Trademark)
thread roll dies and other metal-working tools.
Principal materials products are air and vacuum-melted iron, cobalt, and
nickel-based superalloys, including CMSX(Registered Trademark) single-crystal
alloys; and metallic and ceramic permanent magnets, wound and pressed powder
magnetic components, and magnetic ultra-thin foil and strip products.
The Company's business is highly competitive. Competition is based
primarily on technology, price, service, product quality and performance. The
Company believes that its favorable competitive position is based upon its
high-quality product performance and service to its customers, supported by
its commitment to research and development which has yielded proprietary
products to the extent indicated below.
No material part of the Company's business is dependent upon a single
customer. In 1994, the five largest customers accounted for 20% of the
Company's reported consolidated sales.
The backlog of orders at December 31 was as follows:
1994 1993
---- ----
Fastener segment $72,983 $72,389
Materials segment 25,467 16,584
---------- ----------
Total .......... $98,450 $88,973
========== ==========
No material portion of the Company's business in either segment is
seasonal.
2
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The principal sources of raw materials for the fastener and materials
segments include major and specialty steel producers, and non-ferrous metal
producers, converters and distributors. The Company anticipates it will have
no significant problem with respect to sources or availability of the raw
materials essential to the conduct of its business.
The Company considers its proprietary position important to the two
segments of its business. During 1994, approximately 30% of Company sales
were related to patents and licenses held, and manufacturing know-how.
Generally, the patents and licenses of the Company expire at various times
over the next 17 years.
Total expenditures during 1994, 1993 and 1992 for Company-sponsored
research and development were $4,727, $5,050, and $6,604 respectively. In
1994, approximately 65% of the expenditures were for the Company's fastener
segment.
Capital expenditures for property, plant and equipment are planned at
$20.6 million in 1995, exclusive of any business acquisition.
There were approximately 2,933 and 640 persons employed by the Company at
December 31, 1994 in the fastener and materials segments, respectively.
For financial information concerning industry segments and the foreign and
domestic operations, see Note 19 to the Company's Consolidated Financial
Statements on pages 21 and 22 in the 1994 Annual Report to Shareholders,
which is incorporated herein by reference.
ITEM 2. PROPERTIES
The Company owns or leases the manufacturing properties described below.
All properties are in good condition.
LOCATION
Owned Square Feet
------- --------------
Jenkintown, Pennsylvania 683,000(a)
Cleveland, Ohio ......... 413,000(a)
Santa Ana, California ... 305,000(a)(g)
Salt Lake City, Utah .... 86,000(a)
Marengo, Illinois ....... 442,000(b)
Muskegon, Michigan ...... 110,000(b)
Norfolk, Nebraska ....... 103,000(b)
Sevierville, Tennessee .. 65,000(b)
Ogallala, Nebraska ...... 26,000(b)
Anasco, Puerto Rico ..... 129,000(a)(h)
Coventry, England ....... 240,000(a)
Birmingham, England ..... 137,000(a)
Leicester, England ...... 88,000(a)
Melbourne, Australia .... 44,000(a)
Leased Lease Expires Square Feet
-------- -------------- ------------
Leicester, England (c) 38,000(a)
Shannon, Ireland (d)(e)(f) 233,000(a)
--------------------
(a) Fastener segment
(b) Materials segment
(c) Lease for 38,000 square feet expires January 12, 1997.
(d) Lease for 54,000 square feet expires April 1, 1996.
(e) Lease for 75,000 square feet expires November 15, 2010.
(f) Lease for 104,000 square feet expires November 13, 2010.
(g) Approximately 70,000 square feet used for manufacturing purposes, with
the remaining 235,000 square feet held for lease.
(h) Closed and held for sale.
3
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Industrial Development Revenue Bonds were issued to finance the
acquisition and improvement of the Salt Lake City, Utah, facility. These
bonds are collateralized by a first mortgage on this facility and a bank
letter of credit.
ITEM 3. LEGAL PROCEEDINGS
For discussion of legal proceedings, see Note 11 to the Company's
Consolidated Financial Statements on pages 14 and 15 in the 1994 Annual
Report to Shareholders which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1994, through the solicitations of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
All executive officers of the Company are named below and are appointed by
the Board of Directors. The date that each officer was first appointed to his
present position is indicated. No officer listed was appointed as a result of
any arrangement between him and any other person as that phrase is understood
under the Securities Exchange Act regulations. No family relationship exists
among the executive officers of the Company.
<TABLE>
<CAPTION>
Name Experience and Position Held Age
---- ---------------------------- -----
<S> <C> <C>
Charles W. Grigg Chairman and Chief Executive Officer since December 1993. Previously, President 55
and Chief Operating Officer, Watts Industries, Inc. since 1986.
Harry J. Wilkinson President and Chief Operating Officer since April 1986. Previously, Group 57
Vice President, Aerospace, Automated Systems and Industrial Products since
March 1985. Previously, Group Vice President, Domestic Operations since January
1984.
Harry W. Antes Vice President, Research and Development since September 1986. Previously, 64
Director of Research since 1980.
John P. McGrath Vice President, Corporate Services since August 1988. Previously, President, 55
Latin America/Pacific Operations since 1982.
Aaron Nerenberg Vice President, Corporate Counsel and Secretary since August 1988. Previously, 54
Corporate Counsel and Secretary since July 1986. Previously, Associate Counsel
and Patent Counsel since 1981.
John M. Morrash Treasurer and Assistant Secretary since May 1994. Previously, Treasurer since 40
February 1988. Previously, Controller, Automated Systems Division since 1984.
William M. Shockley Corporate Controller since September 1992. Previously, Assistant Controller 33
since November 1991. Previously, Manager, Coopers & Lybrand since 1988.
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
Information regarding the principal markets on which SPS Technologies
common stock is traded, the high and low sales price for the stock on the New
York Stock Exchange for each quarterly period during the past 2 years, the
quarterly cash dividends declared by SPS Technologies with respect to its
common stock during the past 2 years, and the approximate number of holders
of common stock at March 6, 1995 is included under the caption entitled
"Common Stock Information" on page 23 in the 1994 Annual Report to
Shareholders and is incorporated herein by reference.
4
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ITEM 6. SELECTED FINANCIAL DATA
A summary of selected financial data for SPS Technologies for the years
and year ends specified is included under the caption entitled "Selected
Financial Data" on page 23 in the 1994 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information regarding SPS Technologies financial condition, changes in
financial condition and results of operations is included under the caption
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 24 through 29 in the 1994 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements for SPS Technologies included on pages 6
through 22 in the 1994 Annual Report to Shareholders, together with required
supplementary data "Summary of Quarterly Results" on page 23 in the 1994
Annual Report to Shareholders, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of directors:
Information regarding directors is incorporated by reference to the
Definitive Proxy Statement, Election of Directors, if filed with the
Securities and Exchange Commission (SEC) within 120 days after December
31, 1994. To the extent not so filed, such information will be provided on
a Form 10-K/A filed with the SEC.
(b) Identification of executive officers:
Information regarding executive officers is contained in Part I of this
report (page 4).
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference
to the Definitive Proxy Statement, Executive Compensation and Board Meetings,
Committees and Compensation, if filed with the SEC within 120 days after
December 31, 1994. To the extent not so filed, such information will be
provided on a Form 10-K/A filed with the SEC.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the Definitive Proxy Statement,
Ownership of Voting Securities, if filed with the SEC within 120 days after
December 31, 1994. To the extent not so filed, such information will be
provided on a Form 10-K/A filed with the SEC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
5
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. The Consolidated Financial Statements and related notes to consolidated
financial statements set forth on pages 6 through 22 of the 1994 Annual
Report to Shareholders are incorporated by reference (See Exhibit 13). The
Report of Independent Accountants, which covers both the Consolidated
Financial Statements and the financial statement schedule, appears on page 9
of this report.
2. Financial Statement Schedules:
The following supplemental schedule is located in this Report on the page
indicated.
Page
----
VIII Valuation and Qualifying Accounts 10
Schedules other than those listed above are omitted for the reason that
they are either not applicable or not required or because the information
required is contained in the financial statements or notes thereto.
3. Exhibits:
3a Amended and Restated Articles of Incorporation. Exhibit 3a to the
Annual Report on Form 10-K for the year ended December 31, 1990, is
hereby incorporated by reference.
3b By-Laws as amended, effective April 29, 1993. Exhibit 3 to the
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, is
hereby incorporated by reference.
4a Rights Agreement dated November 11, 1988, is incorporated by reference
to Form 8-K filed November 17, 1988. Amendment No. 1 to Rights
Agreement dated January 22, 1991, is incorporated by reference to Form
8-K filed January 25, 1991. Form of Amendment No. 2 to Rights
Agreement dated November 16, 1994, is incorporated by reference to
Exhibit 4.8 of Form S-3 filed August 26, 1994.
4b Form of Registration Rights Agreement between the Company, the
Purchasers and the Investors dated December 23, 1994. Exhibit 4.5 to
the Form S-3 filed August 26, 1994, is hereby incorporated by
reference.
10a SPS 1988 Long Term Incentive Stock Plan as amended, effective February
2, 1989. Exhibit 10a to the Annual Report on Form 10-K for the year
ended December 31, 1988, is hereby incorporated by reference.
10b SPS Exempt Employees Savings and Investment Plan as Amended and
Restated, effective November, 1991. Exhibit 10b to the Annual Report
on Form 10-K for the year ended December 31, 1991, is hereby
incorporated by reference.
10c SPS Technologies, Inc. Non-Exempt Employees Savings and Investment
Plan as Amended and Restated, effective November, 1991. Exhibit 10c to
the Annual Report on Form 10-K for the year ended December 31, 1991,
is hereby incorporated by reference.
10d SPS Technologies, Inc. Management Incentive Plan as Amended and
Restated, effective April 26, 1994.
10e Form of standby Purchase Agreement dated November 16, 1994. Exhibit
10.1 to the Form S-3/A filed November 17, 1994, is hereby incorporated
by reference.
10f Retirement Benefit Agreement, dated February 28, 1979. Exhibit 10f to
the Annual Report on Form 10-K for the year ended December 31, 1991,
is hereby incorporated by reference.
10g Fee Arrangement with Former Directors, effective November 29, 1984.
Exhibit 10g to the Annual Report on Form 10-K for the year ended
December 31, 1990, is hereby incorporated by reference.
6
<PAGE>
10h Form of Employment Agreements between SPS Technologies, Inc. and
certain employees, as amended and restated effective December 14,
1992. Exhibit 10h to the Annual Report on Form 10-K for the year ended
December 31, 1992, is hereby incorporated by reference.
10i SPS Technologies, Inc. Executive Deferred Compensation Plan, as
amended and restated, effective December 14, 1992. Exhibit 10i to the
Annual Report on Form 10-K for the year ended December 31, 1992, is
hereby incorporated by reference.
10j SPS Technologies, Inc. Executive Deferred Compensation Plan II, as
amended and restated effective December 1, 1993. Exhibit 10j to the
Annual Report on Form 10-K for the year ended December 31, 1993, is
hereby incorporated by reference.
10k SPS Technologies, Inc. Supplemental Executive Retirement Plan, as
amended and restated effective December 14, 1992. Exhibit 10k to the
Annual Report on Form 10-K for the year ended December 31, 1992, is
hereby incorporated by reference.
10l Employment Agreement between SPS Technologies, Inc. and Charles W.
Grigg, Chairman and Chief Executive Officer, effective December 1,
1993. Exhibit 10l to the Annual Report on Form 10-K for the period
ended December 31, 1993, is hereby incorporated by reference.
10m Form of Indemnification Agreements between SPS Technologies, Inc. and
officers and directors dated February 2, 1987. Exhibit 10m to the
Annual Report on Form 10-K for the period ended December 31, 1992, is
hereby incorporated by reference.
10n Split Dollar Insurance Agreements regarding certain officers and
directors effective April 2, 1990, and November 27, 1991. Exhibit 10n
to the Annual Report on Form 10-K for the year ended December 31,
1991, is hereby incorporated by reference.
10o SPS Technologies, Inc. Senior Executive Severance Plan, effective
December 14, 1992. Exhibit 10o to the Annual Report on Form 10-K for
the year ended December 31, 1992, is hereby incorporated by reference.
10p Agreement with Retiring Executive, approved December 14, 1992. Exhibit
10p to the Annual Report on Form 10-K for the year ended December 31,
1992, is hereby incorporated by reference.
10q SPS Technologies, Inc. Benefit Equalization Plan, as amended and
restated effective December 14, 1992. Exhibit 10 to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993, is hereby
incorporated by reference.
11 Computation of dilution (anti-dilution) of earnings per share
resulting from common stock equivalents.
13 1994 Annual Report to Shareholders (With the exception of the
information expressly incorporated by reference in items 1, 3, 5, 6,
7, 8 and 14 of Form 10-K, the 1994 Annual Report to Shareholders is
not deemed "filed" with the SEC or otherwise subject to the
liabilities of Section 18 of the Securities and Exchange Act of 1934).
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the three months ended December
31, 1994.
7
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SIGNATURE
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.
SPS TECHNOLOGIES, INC.
----------------------------
(Registrant)
/s/ William M. Shockley
----------------------------
William M. Shockley
Controller
Date: March 27, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ CHARLES W. GRIGG Chairman, Chief Executive Officer and March 27, 1995
-------------------------------- Director (Principal Executive Officer)
Charles W. Grigg
/s/ HARRY J. WILKINSON President, Chief Operating Officer and March 27, 1995
-------------------------------- Director
Harry J. Wilkinson
/s/ WILLIAM M. SHOCKLEY Controller March 27, 1995
-------------------------------- (Principal Financial Officer)
William M. Shockley
/s/ PAUL F. MILLER, JR. Director March 27, 1995
--------------------------------
Paul F. Miller, Jr.
/s/ HOWARD T. HALLOWELL, III Director March 27, 1995
--------------------------------
Howard T. Hallowell III
/s/ JOHN F. LUBIN Director March 27, 1995
--------------------------------
John F. Lubin
</TABLE>
8
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REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders and Board of Directors
SPS Technologies, Inc.:
We have audited the consolidated financial statements of SPS Technologies,
Inc. and subsidiaries as of December 31, 1994 and 1993 and for each of the
three years in the period ended December 31, 1994, which financial statements
are included on pages 6 through 22 of the 1994 Annual Report to Shareholders
of SPS Technologies, Inc. and subsidiaries and incorporated by reference
herein. We have also audited the financial statement schedule as listed in
Item 14(a)2 of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SPS
Technologies, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for income taxes and postretirement benefits
other than pensions in 1992.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
February 10, 1995
9
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SCHEDULE VIII
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Thousands of dollars)
<TABLE>
<CAPTION>
Additions
charged
(deductions
Balance at credited) to Balance
beginning costs Translation Deductions at end
Description of year and expenses adjustments (a) of year
--------------------------------- ------------ ----------------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994: ...
Allowance for doubtful accounts $ 1,185 $ 348 $ 18 $ (252) $ 1,299
======= ======= ===== ====== =======
Deferred income tax valuation
allowance ...................... $17,717 $(2,255) $15,462
======= ======= ===== ====== =======
Year ended December 31, 1993: ...
Allowance for doubtful accounts $ 1,329 $ 668 $ (32) $ (780) $ 1,185
======= ======= ===== ====== =======
Deferred income tax valuation
allowance ...................... $ 4,751 $12,966 $17,717
======= ======= ===== ====== =======
Year ended December 31, 1992: ...
Allowance for doubtful accounts $ 1,609 $ 485 $ (168) $(597) $ 1,329
======= ======= ===== ====== =======
Deferred income tax valuation
allowance ...................... $ 4,751 $ 4,751
======= ======= ===== ====== =======
</TABLE>
------------
(a) Write off of uncollectible receivables, net of recoveries.
10
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EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
3a Amended and Restated Articles of Incorporation.
Exhibit 3a to the Annual Report on Form 10-K for
the year ended December 31, 1990, is hereby incor-
porated by reference.
3b By-Laws as amended, effective April 29, 1993. Exhibit 3
to the Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993, is hereby incorporated by reference.
4a Rights Agreement dated November 11, 1988, is incorporated
by reference to Form 8-K filed November 17, 1988. Amendment
No. 1 to Rights Agreement dated January 22, 1991, is incorporated
by reference to Form 8-K filed January 25, 1991. Form of Amendment
No. 2 to Rights Agreement dated November 16, 1994, is incorporated
by reference to Exhibit 4.8 of Form S-3 filed August 26, 1994.
4b Form of Registration Rights Agreement between the Company,
the Purchasers and the Investors dated December 23, 1994.
Exhibit 4.5 to the Form S-3 filed August 26, 1994, is
hereby incorporated by reference.
10a SPS 1988 Long Term Incentive Stock Plan as amended,
effective February 2, 1989. Exhibit 10a to the
Annual Report on Form 10-K for the year ended
December 31, 1988, is hereby incorporated by reference.
10b SPS Exempt Employees Savings and Investment Plan
as Amended and Restated, effective November, 1991.
Exhibit 10b to the Annual Report on Form 10-K for
the year ended December 31, 1991, is hereby incor-
porated by reference.
10c SPS Technologies, Inc. Non-Exempt Employees Savings
and Investment Plan as Amended and Restated,
effective November, 1991. Exhibit 10c to the Annual
Report on Form 10-K for the year ended December 31, 1991,
is hereby incorporated by reference.
10d SPS Technologies, Inc. Management Incentive Plan
as Amended and Restated, effective April 26, 1994.
10e Form of standby Purchase Agreement dated November 16, 1994.
Exhibit 10.1 to the Form S-3/A file November 17, 1994, is
hereby incorporated by reference.
10f Retirement Benefit Agreement, dated February 28, 1979.
Exhibit 10f to the Annual Report on Form 10-K for the
year ended December 31, 1991, is hereby incorporated
by reference.
<PAGE>
10g Fee Arrangement with Former Directors, effective
November 29, 1984. Exhibit 10g to the Annual
Report on Form 10-K for the year ended
December 31, 1990, is hereby incorporated by reference.
10h Form of Employment Agreements between SPS Technologies, Inc.
and certain employees, as amended and restated effective
December 14, 1992. Exhibit 10h to the Annual Report on Form
10-K for the year ended December 31, 1992, is hereby
incorporated by reference.
10i SPS Technologies, Inc. Executive Deferred Compensation
Plan, as amended and restated effective December 14, 1992.
Exhibit 10i to the Annual Report on Form 10-K for the year
ended December 31, 1992, is hereby incorporated by reference.
10j SPS Technologies, Inc. Executive Deferred Compensation Plan II,
as amended and restated effective December 1, 1993. Exhibit
10j to the Annual Report on Form 10-K for the year ended
December 31, 1993, is hereby incorporated by reference.
10k SPS Technologies, Inc. Supplemental Executive Retirement
Plan, as amended and restated effective December 14, 1992.
Exhibit 10k to the Annual Report on Form 10-K for the year
ended December 31, 1992, is hereby incorporated by reference.
10l Employment Agreement between SPS Technologies, Inc. and
Charles W. Grigg, Chairman and Chief Executive Officer,
effective December 1, 1993. Exhibit 10l to the Annual
Report on Form 10-K for the period ended December 31, 1993,
is hereby incorporated by reference.
10m Form of Indemnification Agreement between SPS Technologies, Inc.
and officers and directors dated February 2, 1987. Exhibit 10m
to the Annual Report on Form 10-K for the year ended December
31, 1992, is hereby incorporated by reference.
10n Split Dollar Insurance Agreements regarding certain
officers and directors effective April 2, 1990, and
November 27, 1991. Exhibit 10n to the Annual Report
on Form 10-K for the year ended December 31, 1991,
is hereby incorporated by reference.
10o SPS Technologies, Inc. Senior Executive Severance Plan,
effective December 14, 1992. Exhibit 10o to the Annual Report
on Form 10-K for the year ended December 31, 1992, is hereby
incorporated by reference.
10p Agreement with Retiring Executive, approved December 14, 1992.
Exhibit 10p to the Annual Report on Form 10-K for the year ended
December 31, 1992, is hereby incorporated by reference.
10q SPS Technologies, Inc. Benefit Equalization Plan, as amended and
restated effective December 14, 1992. Exhibit 10 to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993, is
hereby incorporated by reference.
<PAGE>
11 Computation of dilution (anti-dilution) of earnings
per share resulting from common stock equivalents.
13 1994 Annual Report to Shareholders (With the exception
of the information expressly incorporated by reference in items
1, 3, 5, 6, 7, 8 and 14 of Form 10-K, the 1994 Annual Report to
Shareholders is not deemed "filed" with the SEC or otherwise
subject to the liabilities of Section 18 of the Securities and
Exchange Act of 1934).
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 10d
SPS TECHNOLOGIES, INC.
MANAGEMENT INCENTIVE PLAN
Amended and Restated Effective April 26, 1994
l. Purpose. The purpose of the SPS Technologies, Inc. Management
Incentive Plan is to further the growth of SPS Technologies, Inc. by offering
incentives to key management employees of the Company and its subsidiaries
who are largely responsible for the Company's growth. This incentive is to
be accomplished by providing for awards determined from corporate or division
earnings over annual cycles.
2. Definitions. Unless the context otherwise requires, the following
words as used herein shall have the following meanings:
(a) "Plan" shall mean the SPS Technologies, Inc. Management Incentive
Plan, as amended from time to time.
(b) "Company" shall mean SPS Technologies, Inc., a Pennsylvania
corporation.
(c) "Subsidiary" shall mean any corporation more than 50% of the issued
and outstanding voting stock of which is owned, directly or indirectly, by
the Company.
(d) "Division" shall mean that portion of the operations of the Company
and its Subsidiaries as is designated as a Division for internal purposes.
(e) "Business Unit" shall mean a discrete enterprise within a Division
(for example, a sales office/warehouse operating in a different country, or a
product line manufacturing cell within a plant).
(f) "Award Period" shall mean l978 and each subsequent calendar year
starting with l979.
(g) "Retirement" shall mean termination of employment upon such terms
and conditions as shall entitle the Participant to the commencement of an
immediate pension under the Retirement Income Plan maintained by the Company,
or any successor plan thereto.
(h) "Disability" shall mean mental or physical incapacity as shall
prevent the Participant from performing those duties which such Participant
had been performing for the Company prior to such incapacity.
(i) "Consolidated Operating Profit" shall mean the consolidated
pre-tax, pre-interest earnings of the Company for the Award Period.
(j) "Division or Business Unit Operating Profit" shall mean pre-tax,
pre-interest earnings of a Division or Business Unit for the Award Period
calculated on the customary basis of internal accounting but excluding any
foreign exchange adjustments.
(k) "Corporate Participant" shall mean an employee who has primarily
Company-wide responsibilities and who is designated as a Participant by the
Committee.
(l) "Division Participant" shall mean an employee who has primarily
only Division-wide responsibility and who is designated as a Participant by
the Committee.
<PAGE>
(m) "Participant" shall mean any Corporate or Division Participant.
(n) "Fund" shall mean the fund established under the Plan pursuant to
the terms of Section 5 hereof.
(o) "Committee" shall mean the Executive Compensation and Stock Option
Committee of the Board of Directors.
(p) "Annual Base Salary" shall mean: (i) with respect to a
Participant who is such as of the first day of an Award Period, the Annual
Base Salary rate of such Participant in effect as of such first day; and (ii)
with respect to a Participant who becomes such after the first day of an
Award Period, the Annual Base Salary rate of such Participant in effect as of
the day on which he becomes a Participant.
(q) "Board of Directors" shall mean the Board of Directors of the
Company.
(r) "Corporate Cash Flow" shall mean consolidated net cash provided or
used by operating activities of the Company less consolidated additions to
property, plant and equipment for the Company for the Award Period.
(s) "Division Cash Flow" shall mean the net cash provided or used by
operating activities of the Division for the Award Period, calculated on the
customary basis of internal accounting less additions to property, plant and
equipment for the Award Period.
(t) "Customer Performance Requirements" shall mean other timely
business activities which are necessary to provide the products and services
that are expected or required by the customer.
3. Participation for Less Than a Full Award Period.
Award opportunity will be pro-rated with respect to any Participant who has
been such for less than a full Award Period, subject to the following:
(a) If, during any Award Period, any employee not designated as a
Participant at the beginning of such Award Period is either promoted,
reassigned or employed (Entry) on or before September 30 of such Award
Period, in a position which the Committee, in its sole discretion, deems
appropriate to include the employee as a Participant under the Plan, such
person shall be deemed a Participant commencing:
(i) If the Entry becomes effective on or before the l5th of
any month as of the first day of that month; or
(ii) If the Entry becomes effective on or after the l6th of
any month, as of the first day of the next following month.
(b) If, during any Award Period, a Participant becomes ineligible
by virtue of reassignment to a position which is not deemed by the Committee,
in its sole discretion, appropriate to include the employee as a Participant
under the Plan (Exit) on or before September 30 of such Award Period, such
person shall cease to be a Participant commencing:
(i) If the Exit becomes effective on or before the l5th of
any month as of the first day of that month; or
(ii) If the Exit becomes effective on or after the l6th of any
month, as of the first day of the next following month.
<PAGE>
(c) Any Entry or Exit occurring after September 30 of any Award
Period shall be ignored.
(d) Any pro-ration shall be made on the basis of the ratio of the
number of months during the Award Period in which the employee was included
as a Participant under the Plan to the total number of months in the Award
Period.
4. Fixing Performance Goals and Extent of Participation
(a) Awards under the Plan for each Award Period shall be based
upon performance factors for the Company or for a Division which shall be
selected by the Committee from among the following factors:
(1) For Corporate Participants:
(i) Consolidated Operating Profit
(ii) Corporate Cash Flow
(iii) Specific individual objectives that are
necessary to accomplish either or both
of the following:
achieve (a) the plan year Income
Statement, and/or (b) the Balance Sheet
results, as approved by the Board of
Directors
(2) For Division Participants:
(i) Division or Business Unit Operating
Profit
(ii) Division or Business Unit sales and/or
orders
(iii) Specific individual objectives that
directly relate to the Income
Statement, Balance Sheet or Cash Flow
Statement of the Division or Business
Unit
(iv) Specific individual objectives as
assigned to meet Division or Business
Unit Customer Performance Requirements
(b) At the beginning of each Award Period the Committee shall make
the following determinations for the Award Period:
(1) Select from among the factors listed in Section 4(a)(1)(i
to iii) above for Corporate Participants, and from among the factors listed
in Section 4(a)(2)(i to iv) above (for each Division) for Division
Participants, objectives which would yield maximum awards;
(2) Construct a schedule of partial award percentages for
each of the factors selected;
(3) Set the percentage of each Participant's Annual Base
Salary which would be used to determine such Participant's individual maximum
award.
<PAGE>
5. Available Fund. The total fund available for distribution for an
Award Period shall be determined by the Committee.
6. Formula Calculation of Awards. Subject to adjustment under Section
7, as of the end of the Award Period, the actual award for a Participant
shall be calculated by multiplying the Participant's Annual Base Salary by
the percentage of each factor (or portion thereof, if applicable) achieved in
the schedule prepared for such Participant, as determined by such
Participant's objective rating report. The resulting amounts shall then be
added to obtain the actual award payable to the Participant. The award for
each factor may be limited to a maximum of fifty percent (50%) if the
Corporate, Divisional or Business Unit Operating Profit fails to meet the
minimum level of Operating Profit designated by the Committee.
7. Discretionary Awards. The amount of awards calculated pursuant to
Section 6 above may be adjusted upward by the Chairman of the Company to
reflect any inequities in the evaluation of achievement of management
objectives or to reflect any other inequities that arise from the application
of the formula calculations. Such adjustment may be made with respect to the
calculation of awards for one or more Participants as the Chairman
determines. The total of such discretionary adjustments shall not exceed 20%
of the total fund established under Section 5.
In addition to the foregoing discretionary awards, a maximum of l0% of
the total fund established under Section 5 will be available for distribution
to employees who are not otherwise Participants in this Plan. Such
discretionary awards will be determined by the Chairman of the Company,
acting upon the advice of senior management.
8. Normal Payment of Awards. Subject to Section 9, payment of awards
earned during any Award Period shall be made in a single cash payment as soon
after the end of the Award Period as is administratively practicable.
9. Effect of Termination of Employment.
(a) Any Participant whose active employment terminates before the
end of an Award Period for any reason other than death, Retirement,
Disability or transfer to a position not deemed by the Committee appropriate
to include the employee as a Participant under the Plan, shall forfeit all
right to any Award for that Award Period; provided, however, that
notwithstanding the foregoing, the Committee may authorize the payment to
such Participant of such portion of the award as it deems appropriate based
upon such Participant's performance and the Company (or Division) performance
during that portion of the Award Period for which such Participant was
actively employed and eligible.
(b) If a Participant's active employment terminates during an
Award Period as a result of death, Retirement or Disability the provisions of
Section 3(b) shall be applied, with the phrase "Exit" being read to mean
death, Retirement or Disability, as the case may be.
(c) Any unpaid amounts due a deceased Participant hereunder shall
be paid to the Participant's designated beneficiary, or in the absence of any
designation, to Participant's estate.
10. Maximum Awards. Maximum Awards shall not exceed the awards as
calculated in accordance with Section 4.
11. Administration
(a) Designation of Committee. This Plan shall be administered by
the Committee.
<PAGE>
(b) Duties of Committee. The Committee shall be responsible for
interpretation of Plan provisions and approval of benefit payments to the
extent such responsibility has not been allocated under the Plan to another
entity, and subject to and in accordance with the provisions hereof shall
determine all questions arising under the Plan. The Committee may also make
such rules and regulations and prescribe such forms and procedures for the
conduct of its meetings and administrative duties as it deems appropriate.
The Committee shall endeavor to act by general rules so as not to
discriminate in favor of any person.
(c) Agents. The Committee shall appoint an individual to be the
Committee's agent with respect to the day-to-day administration of the Plan.
In addition, the Committee may, from time to time, employ other agents and
delegate to them such administrative duties as it sees fit, and may from time
to time consult with counsel who may be counsel to the Company.
(d) Binding Effect of Decisions. The decision or action of the
Committee in respect of any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules and
regulations promulgated hereunder shall be final and conclusive and binding
upon all persons having any interest in the Plan, except to the extent that a
court of competent jurisdiction shall decide to the contrary.
(e) Indemnity of Committee. The Company shall indemnify and hold
harmless the members of the Committee against any and all claims, loss,
damage, expense or liability arising from any action or failure to act with
respect to this Plan, except in the case of willful misconduct.
12. Nonassignment or Segregation.
(a) Awards earned but unpaid hereunder shall not be subject to
assignment, transfer, pledge, encumbrance, or alienation. The Company shall
not segregate or physically set aside any funds or assets as a result of this
Plan except insofar as payments are actually made in accordance with Section
8.
(b) In the event that benefits payable under this Plan are secured
pursuant to the terms of a trust, then, if after a Change of Control (as such
term may be defined in the trust instrument) the trust is terminated, the
benefits so secured shall become immediately payable under this Plan,
anything to the contrary contained herein notwithstanding.
13. Duration and Amendment. This Plan as amended and restated shall
become effective January l, l979 and shall remain in effect until terminated
by the Board of Directors.
The Board of Directors shall have the power to amend this Plan at
any time; provided, however, that no amendment or termination of the Plan
shall affect any amounts earned during an Award Period which has ended.
14. Not a Contract of Employment. The terms and conditions of this
Plan shall not be deemed to constitute a contract of employment between the
Company and the Participant, and the Participant (or his Beneficiary) shall
have no rights against the Company except as may otherwise be specifically
provided herein. Moreover, nothing in this Plan shall be deemed to give a
Participant the right to be retained in the service of the Company or to
interfere with the right of the Company to discipline or discharge him or her
at any time.
###
<PAGE>
EXHIBIT 11
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
Computation of Dilution (Anti-dilution) of Earnings Per Share
Resulting from Common Stock Equivalents
Years ended December 31, 1994, 1993, 1992, 1991 and 1990
(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:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net earnings (loss)(a) $ 3,200 $ (30,995) $ (20,409) $ 6,602 $ (11,461)
========== ========== ========== ========== ==========
Weighted average number of shares outstanding
during year 5,131,900 5,105,706 5,097,994 5,073,798 5,026,372
Weighted average of maximum shares subject to
exercise under outstanding stock options at
December 31 399,955 271,679 190,533 265,823 156,308
---------- ---------- ---------- ---------- ----------
5,531,855 5,377,385 5,288,527 5,339,621 5,182,680
Less treasury shares assumed purchased with
proceeds from assumed exercise of outstanding
options(b) 360,811 239,832 169,065 208,413 103,133
---------- ---------- ---------- ---------- ----------
Weighted average number of common shares and
equivalent common shares outstanding after
assumed exercise of options 5,171,044 5,137,553 5,119,462 5,131,208 5,079,547
========== ========== ========== ========== ==========
Pro forma earnings (loss) per share based on
above assumptions(c) $ .62 $ (6.03) $ (3.99) $ 1.29 $ (2.26)
========== ========== ========== ========== ==========
Earnings (loss) per share as reported $ .62 $ (6.07) $ (4.00) $ 1.30 $ (2.28)
========== ========== ========== ========== ==========
</TABLE>
(a) Earnings have been charged with maximum compensation expense relating to
outstanding nonqualified stock options.
(b) All options are exercisable under a nonqualified plan. The proceeds from
assumed exercise of options, aggregate $8,896 in 1994, $6,199 in 1993,
$4,467 in 1992, $6,870 in 1991 and $3,363 in 1990; the proceeds and number
of treasury shares assumed purchased were determined on the most likely
exercise assumptions.
(c) Pro forma earnings (loss) per share assuming full dilution are not
presented separately since there would be no additional dilutive effect,
or the effect would be anti-dilutive.
<PAGE>
SPS
TECHNOLOGIES
1994
ANNUAL REPORT
<PAGE>
SPS TECHNOLOGIES
o AEROSPACE PRODUCTS DIVISION High-strength bolts, nuts and screws, and
precision components, for commercial and military aircraft and jet engines.
o INDUSTRIAL PRODUCTS DIVISION High-strength bolts, nuts and screws, and
precision components, for automobiles, trucks, diesel engines and farm and
construction equipment.
o UNBRAKO PRODUCTS DIVISION UNBRAKO(Registered Trademark) brand socket screws
and other fasteners for industrial machinery and equipment.
o HI-LIFE TOOLS Precision tooling including cutting tools, forging tools,
thread rolling dies and forming and trimming dies for the high-strength
aerospace and industrial fastener industries.
o CANNON-MUSKEGON CORPORATION Superalloys for medical applications, aerospace
and industrial gas turbine engine components, and other parts produced by
investment casting.
o THE ARNOLD ENGINEERING CO. Magnetic materials and precision foil and strip
products for automobiles, aircraft, power supplies, electrical equipment and
electronic security systems.
o NATIONAL-ARNOLD MAGNETICS COMPANY (A joint venture.) Soft magnetic tape-wound
core products for electrical and electronic equipment.
o METALAC S.A. INDUSTRIA e COMERCIO (An affiliate.) Manufacturer and
distributor of industrial and automotive products in Brazil.
o PRECISION FASTENERS LIMITED (An affiliate.) Manufacturer and distributor of
UNBRAKO(Registered Trademark) brand socket screws and other fasteners in
India and Southeast Asia.
THE MISSION OF SPS TECHNOLOGIES
SPS Technologies, a supplier to industry and a leader in the markets we
address, is dedicated to providing quality products that create value for our
customers and fair returns for our investors and suppliers; to performance
that is in the forefront of our industry by any standard of measurement; and
to conduct that reflects the highest standards of ethics and integrity. We
are committed to being a responsibile employer and a good citizen of the
communities in which we operate. We believe in self-evaluation of everything
we do as the basis for continuous improvement in the total quality of our
enterprise.
<PAGE>
SPS FINANCIAL HIGHLIGHTS (Millions of dollars)
-----------------------------------------------------------------------------
1992 1993 1994
-------- -------- --------
Net sales .................... $359.4 $319.1 $348.9
Earnings (loss) before unusual
items and accounting changes (1.7) (0.8) 6.7
Net earnings (loss) .......... (20.4) (31.0) 3.2
Cash ......................... 2.9 6.9 9.5
Total debt ................... 70.4 89.2 64.7
Shareholders' equity ......... 142.6 102.8 124.1
Incoming orders .............. 345.1 333.7 365.4
Backlog ...................... 84.5 89.0 98.5
Net Sales Millions of dollars
400.0 |-----------------------------------------------------|
| |
350.0 |-----------|-----------------------------------------|
| | | |
300.0 |-----------|-----------------|-----------------|-----|
| | | | |
250.0 |-----------|-----------------|-----------------|-----|
1992 1993 1994
Net Earnings Millions of dollars
|-----------|-----------------|-----------------|-----| -0
| | | |
|-----------|-----------------|-----------------------| -10
| | | |
|-----------|-----------------|-----------------------| -20
| | |
|-----------|-----------------|-----------------|-----| -30
1992 1993 1994
Debt to Equity
100% |-----------------------------------------------------|
| | |
80% |-----------------------------|-----------------------|
| | |
60% |-----------------------------|-----------------------|
| | | | |
40% |-----------|-----------------|-----------------|-----|
| | | | |
20% |-----------|-----------------|-----------------|-----|
1992 1993 1994
Total Equity Millions of dollars
|-----------------------------------------------------| 160
| |
|-----------|-----------------------------------------| 140
| | |
|-----------|-----------------------------------|-----| 120
| | | |
|-----------|-----------------|-----------------|-----| 100
| | | | |
|-----------|-----------------|-----------------|-----| 80
1992 1993 1994
1
<PAGE>
(PHOTO)
TO OUR
SHAREHOLDERS:
1994 was the year we turned SPS around. We earned a profit after tax of
$3.2 million compared to a loss of $31.0 million last year and cumulative
losses of $56.3 million over the last four years. Our sales grew 9% to $348.9
million, which compares to sales declines of 11% in 1993 and 12% in 1992. Our
orders in 1994 were $365.4 million and backlog at the end of 1994 was $98.5
million, which represents a growth of 10% in orders and backlog compared to
1993. We decreased our debt by $24.5 million to $64.7 million, which compares
to increases in debt of $18.8 million in 1993 and $4.8 million in 1992. Our
shareholders' equity increased by $21.3 million to $124.1 million, which
compares to decreases in shareholders' equity of $39.8 million in 1993, and
$36.7 million in 1992.
These results were accomplished because we executed the operating strategy
and plan for restructure and reorganization that we described in the Letter
to Shareholders in last year's Annual Report. We downsized the corporate
staff from 167 to 24. We sold the Newtown office building for $10.0 million
and relocated the remaining corporate staff to part of a leased floor in an
office building near the Jenkintown, Pennsylvania plant. We sold the SPS jet
airplane for $1.1 million. We reduced the number of non-direct employees by
214, which was approximately 10% of our total non-direct work force. We sold
the Assembly Systems Division, which had accumulated five year operating
losses of $11.6 million. We sold Ferre Plana, S.A., which had accumulated
operating losses of $9.4 million since it was acquired in 1990. We completed
our plant consolidation program and re-focused SPS on achieving the sales,
technical and manufacturing excellence that had been our heritage until it
was buried beneath the corporate bureaucracy of the recent past. Our
customers responded with increased orders in spite of the aerospace segment
of our business remaining at the bottom of the cycle. Our shareholders
responded with renewed confidence in SPS, and this resulted in the successful
completion of our Rights Offering in December 1994, which raised $12.2
million.
Our earnings per share in 1994 were $.62 compared to a loss of $6.07 last
year. Earnings per share before unusual items were $1.31 compared to a loss
of $.15 last year. Unusual items in 1994 were the sale of Ferre Plana, S.A.,
the sale of Assembly Systems and certain favorable efficiencies realized on
our plant consolidation program which had not been anticipated in the
restructuring charge incurred last year. The net result of these events was
an unusual non-cash charge of $3.5 million.
The sale of our Newtown office building for $10.0 million took place in
December and resulted in a capital gain net of expenses of $2.9 million. This
gain was largely offset by an increase in the accrual for environmental
matters and increased inventory reserves for slow moving Unbrako product
located in North America.
The Materials Group and Aerospace Products Division were responsible for
most of the operating profit increase in 1994. In the Materials Group, both
Arnold Engineering and Cannon-Muskegon had an excellent year. Arnold
Engineering achieved an 18% increase in sales and a 126% increase in
operating profit compared to last year. Arnold's impressive results were due
to its own restructuring, acquisition, divestiture and heavy capital
expenditure programs implemented over the past three years. Arnold's purchase
of the bonded magnet business from 3M Company in 1992, the divestiture of its
wound-core operations formally located in Marengo, Illinois into a 50% owned
joint venture called National-Arnold Magnetics Company located in Adelanto,
California, and the relocation of its hard ferrite operations from Marengo to
Sevierville, Tennessee where these operations were consolidated with the hard
ferrite operations already located in Sevierville, have all significantly
2
<PAGE>
helped to improve Arnold's earnings. Also contributing was a reduction of
non-direct employees at the end of 1993, which reduced annual overhead by over
$1.0 million.
Cannon-Muskegon achieved a 19% increase in sales and a 23% increase in
operating profit compared to last year. The completion in April 1994 of its
new $1.5 million continuous cast air melt line gave Cannon the additional air
melt capacity needed to substantially increase sales and operating profit in
the second half of 1994. Cannon-Muskegon continued to have success in finding
new customers for its patented single crystal alloys for high temperature
service.
In spite of a weak aerospace fastener market, our Aerospace Products
Division achieved a significant turn-around in 1994. Sales increased by 12%
and operating profit increased by 170% compared to last year. The Jenkintown
plant had a difficult first six months of 1994 because of the consolidation
of certain operations from our Santa Ana plant into Jenkintown, but its
second half results were impressive. Santa Ana and our T. J. Brooks operation
in Leicester, England also achieved significant increases in operating
profit. With new commercial and military airplane rollouts at a low level,
the Aerospace Products Division has focused its sales and manufacturing
efforts on the repair, replacement and retrofit market, which in 1994
accounted for 50% of our aerospace sales.
Sales of automotive fasteners were up substantially in 1994, but we did
not have adequate equipment or infrastructure in place to earn a profit on
this additional business. Last year, we embarked on a program to purchase
equipment and add needed infrastructure that should enable us to achieve
adequate returns on investment in this segment of our fastener business.
The Unbrako Products Division, which manufactures and sells industrial
socket screws and other fastener products through worldwide distribution, had
a solid year except in North America. We have completely restructured and
reorganized our Unbrako operations in North America. The disruption
associated with the 1993 plant consolidation and 1994 restructuring adversely
affected our ability to properly service our customers in 1994. By the fourth
quarter of 1994, customer delivery and service levels had returned to
acceptable standards. Including the year end inventory write-downs previously
mentioned, this business lost money in 1994. We expect a significant
improvement in 1995.
Capital expenditures in 1994 were $17.6 million compared to depreciation
of $12.6 million. Our capital expenditure plan for 1995 is $20.6 million. We
will need to maintain capital expenditures at these levels for several years
in order to achieve the manufacturing excellence required to service our
customers and achieve an adequate return on shareholders' equity.
In spite of high capital expenditures, we significantly improved our
balance sheet. Cash increased by $2.6 million, debt decreased by $24.5
million and our debt/equity ratio at year end was 52% compared to 87% last
year. Cash flow from operations was $14.7 million compared to $.9 million
last year. We generated $15.5 million from the sale of assets (Newtown,
Assembly Systems, Company airplane). We paid $6.7 million in cash for
restructuring activities, which were mostly severance payments for terminated
employees.
In March 1995, we announced that we had signed a definitive Asset Purchase
Agreement with Harvard Industries, Inc. for the purchase of certain assets of
their Elastic Stop Nut Division (ESNA). ESNA is a significant manufacturer of
aerospace nuts. Certain operations will be moved to Jenkintown, Pennsylvania
and other operations will be moved to Santa Ana, California. Now that we have
refinanced SPS, we have the ability to make certain relatively modest but
strategic acquisitions that will strengthen our existing businesses.
We came a long way in 1994. We have good momentum in most of our
businesses. Most of our employees participate in incentive plans and many
received their first incentive payment ever in 1994. We have many talented
and skilled employees and their morale and motivation is high. We are making
the capital investments required to prosper in the markets we serve. Our
prospects for 1995 are favorable. We believe we can continue in 1995 the
favorable trend that we began in 1994.
/s/ Charles W. Grigg
------------------------------------
Charles W. Grigg
Chairman and Chief Executive Officer
3
<PAGE>
CANNON-MUSKEGON
CORPORATION
High-quality air and
vacuum-melted iron,
cobalt, and nickel-based
superalloys, including
proprietary CMSX (R) (PHOTO)
single-crystal and
directionally-solidified
alloys, sold in ingot
form to other compa-
nies for investment
casting.
THE ARNOLD
ENGINEERING CO.
Magnetic materials used in
electric motors, power
supplies, anti-theft systems,
medical equipment, computers,
television sets, generators, (PHOTO)
telecommunications equipment,
aircraft instrumentation
and automotive sensoring
systems.
4
<PAGE>
AEROSPACE
PRODUCTS DIVISION
Fasteners designed for
critical uses in aircraft,
jet engines, and space
vehicles, which must
withstand high stress
loads, extremes of heat (PHOTO)
and cold, and corrosive
environments, supplied
to major military and
commercial airframe
and engine manufacturers.
INDUSTRIAL
PRODUCTS DIVISION
High-value, high-performance
engineered fasteners
and components supplied
directly to original equipment (PHOTO)
manufacturers, primarily
automobile, truck, and
engine manufacturers.
UNBRAKO
PRODUCTS DIVISION
UNBRAKO (R) brand socket
screws, hex keys, dowel pins,
shaft collars, spring pins, and (PHOTO)
pressure plugs supplied to the
industrial market through a
worldwide network of distributors.
5
<PAGE>
Statements of Consolidated Operations
(Thousands of dollars, except share data)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31
1994 1993 1992
---------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 348,905 $ 319,094 $ 359,431
Cost of goods sold 292,580 269,207 306,425
---------- ---------- ----------
GROSS PROFIT 56,325 49,887 53,006
Selling, general and administrative expense 44,847 46,574 49,312
Restructuring charge, net 3,500 32,400 6,800
---------- ---------- ----------
OPERATING EARNINGS (LOSS) 7,978 (29,087) (3,106)
Other income (expense):
Interest income 440 472 765
Interest expense (6,924) (5,906) (5,805)
Equity in earnings of affiliates 1,726 563 588
Other, net 2,900 363 (751)
---------- ---------- ----------
(1,858) (4,508) (5,203)
---------- ---------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING POLICIES 6,120 (33,595) (8,309)
Provision (benefit) for income taxes 2,920 (2,600) (1,300)
---------- ---------- ----------
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING POLICIES 3,200 (30,995) (7,009)
Cumulative effect of changes in accounting policies
Income taxes (2,400)
Postretirement benefits (11,000)
---------- ---------- ----------
NET EARNINGS (LOSS) $ 3,200 $ (30,995) $ (20,409)
========== ========== ==========
Per share data:
Earnings (loss) before cumulative effect of changes
in accounting policies $ .62 $ (6.07) $ (1.37)
Cumulative effect of changes in accounting policies (2.63)
---------- ---------- ----------
NET EARNINGS (LOSS) $ .62 $ (6.07) $ (4.00)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
Consolidated Balance Sheets
(Thousands of dollars, except share data)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ....................................... $ 9,472 $ 6,852
Accounts and notes receivable, net .............................. 54,434 48,968
Inventories ..................................................... 77,299 80,604
Deferred income taxes ........................................... 14,400 13,667
Prepaid expenses ................................................ 2,379 2,300
Net assets held for sale ........................................ 2,367 8,619
---------- ----------
Total current assets .......................................... 160,351 161,010
---------- ----------
Investments in affiliates ........................................ 14,841 12,475
Property, plant and equipment, net ............................... 87,764 86,958
Other assets ..................................................... 26,290 25,536
---------- ----------
Total assets ................................................ $289,246 $285,979
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion of long-term debt ............. $ 8,248 $ 7,339
Accounts payable ................................................ 27,163 19,657
Accrued expenses ................................................ 35,190 38,885
Income taxes payable ............................................ 1,259 646
---------- ----------
Total current liabilities ..................................... 71,860 66,527
---------- ----------
Deferred income taxes ............................................ 10,955 9,445
Long-term debt ................................................... 56,426 81,828
Retirement obligations ........................................... 25,901 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 6,377,256 shares (6,361,606 shares in 1993) .... 6,378 6,362
Additional paid-in capital ...................................... 68,124 59,704
Retained earnings ............................................... 63,716 60,516
Minimum pension liability ....................................... (1,235) (1,780)
Common stock in treasury, at cost 740,897 shares (1,254,977
shares in 1993) ............................................... (5,990) (10,144)
Cumulative translation adjustments .............................. (6,889) (11,831)
---------- ----------
Total shareholders' equity .................................... 124,104 102,827
---------- ----------
Total liabilities and shareholders' equity .................. $289,246 $285,979
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
Statements of Consolidated Cash Flows
(Thousands of dollars)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31
1994 1993 1992
---------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 3,200 $ (30,995) $(20,409)
Reconciliation of net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 13,063 14,484 15,343
Equity in earnings of affiliates (1,726) (563) (588)
Net (gain) loss on sale of property, plant and equipment (3,374) 40 6
Deferred income taxes 496 (1,812) (1,447)
Restructuring charge, net 3,500 32,400 6,800
Cash used for restructuring activities (6,700) (14,892) (3,221)
Cumulative effect of changes in accounting policies 13,400
Other operating items 123 43 (228)
Changes in:
Receivables (6,311) 2,204 841
Inventories 1,984 558 8,704
Prepaid expenses (179) 871 1,034
Accounts payable 8,123 (851) 1,598
Accrued expenses 2,782 (2,618) 901
Income taxes payable 523 (282) (5,951)
Other assets and liabilities, net (825) 2,344 (1,299)
---------- ------------ -----------
Net cash provided by operating activities 14,679 931 15,484
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (17,615) (12,248) (11,555)
Proceeds from sale of property, plant and equipment 13,333 302 456
Acquisition (3,900)
Proceeds from divestitures 2,128 2,500
Other, net 708 63
---------- ------------ -----------
Net cash used by investing activities (1,446) (9,446) (14,936)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 14,560 38,200 25,679
Reduction of borrowings (38,291) (18,988) (20,642)
Proceeds from rights offering 12,185
Payments of cash dividends (6,535) (6,521)
Proceeds from exercise of stock options 405 29 515
---------- ------------ -----------
Net cash provided (used) by financing activities (11,141) 12,706 (969)
Effect of exchange rate changes on cash 528 (218) (479)
---------- ------------ -----------
Net increase (decrease) in cash and cash equivalents 2,620 3,973 (900)
Cash and cash equivalents at beginning of year 6,852 2,879 3,779
---------- ------------ -----------
Cash and cash equivalents at end of year $ 9,472 $ 6,852 $ 2,879
========== ============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $6,911 $5,918 $6,153
Income taxes paid (refunded), net 1,700 (326) 5,358
</TABLE>
Prior year amounts have been reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
8
<PAGE>
Statements of Consolidated Shareholders' Equity
(Thousands of dollars, except share data)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Minimum Cumulative Total
Common Paid-In Retained Pension Treasury Translation Shareholders'
Stock Capital Earnings Liability Stock Adjustments Equity
-------- ------------ ---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $6,362 $59,349 $123,349 $ (448) $(10,333) $ 1,009 $179,288
Issuance of treasury shares
under stock option plans 336 179 515
Net loss (20,409) (20,409)
Cash dividends-$1.28 per
share (6,528) (6,528)
Minimum pension liability
changes (275) (275)
Foreign currency translation
adjustment (9,973) (9,973)
------ ------- -------- -------- --------- --------- --------
Balance, December 31, 1992 6,362 59,685 96,412 (723) (10,154) (8,964) 142,618
Issuance of treasury shares
under stock option plans 19 10 29
Net loss (30,995) (30,995)
Cash dividends-$.96 per
share (4,901) (4,901)
Minimum pension liability
changes (1,057) (1,057)
Foreign currency translation
adjustment including $532
write-off related to the
sale of subsidiary (2,867) (2,867)
------ ------- -------- -------- --------- --------- --------
Balance, December 31, 1993 6,362 59,704 60,516 (1,780) (10,144) (11,831) 102,827
Issuance of common shares
under stock option plans 16 355 371
Issuance of treasury shares
under stock option plans 22 12 34
Issuance of treasury shares
under rights offering 8,043 4,142 12,185
Net earnings 3,200 3,200
Minimum pension liability
changes 545 545
Foreign currency translation
adjustment including $677
write-off related to the
sale of subsidiary 4,942 4,942
------ ------- -------- -------- --------- --------- --------
Balance, December 31, 1994 $6,378 $68,124 $ 63,716 $(1,235) $ (5,990) $ (6,889) $124,104
====== ======= ======== ======== ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
Notes to Consolidated Financial Statements
(Thousands of dollars, except share data)
1. SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company
and all subsidiaries. Investments in affiliates, owned more than 20 percent
but not in excess of 50 percent, are recorded on the equity method.
Cash Equivalents
The Company considers cash equivalents to be all highly liquid investments
purchased with original maturities of three months or less. The carrying
amount approximates fair value because of the short maturity of these items.
Inventories
Inventories are valued at lower of cost or market. Cost is determined by
the average cost method and includes material, labor and manufacturing
overhead costs. The Company provides reserves against its slow moving,
obsolete and excess inventories based upon factors which include current
customer requirements, quantity on hand, age of inventory and months supply
of inventory. The provisions for such reserves are recorded as a component of
cost of goods sold.
Property and Depreciation
Property, plant and equipment are stated at cost. Depreciation is provided
substantially on a straight-line basis over the estimated useful lives of the
respective assets. Asset and accumulated depreciation accounts are reduced
for the sale or other disposition of property and the resulting gain or loss
is included in results of operations. Fully depreciated items, other than
buildings, generally are removed from the accounts.
Intangible Assets
Intangible assets, included in other assets, were approximately $6,400 and
$8,700 at December 31, 1994 and 1993, respectively. Intangible assets consist
primarily of goodwill which arose from the excess of the cost of purchased
businesses over the value of the net underlying assets and is being amortized
by the straight-line method over periods not exceeding 40 years. The
Company's policy is to record an impairment loss against intangible assets in
the period when it is determined that the carrying amount of the asset may
not be recoverable.
Retirement Plans
Substantially all employees are covered by pension plans. Plans in the
United States are noncontributory and non-United States plans are primarily
contributory. Generally, unrecognized gains and losses are systematically
amortized over the average remaining service period of the plans' active
participants. For United States plans, the Company funds the minimum amount
permitted by the Employee Retirement Income Security Act (ERISA) and for
non-United States plans, the Company generally funds current costs.
Foreign Currency Translation
The asset and liability accounts of the Company's non-United States
subsidiaries are translated into United States dollars at year-end exchange
rates. Revenue and expense accounts are translated at average exchange rates
for each year. Net translation gains and losses are adjusted directly to a
separate component of shareholders' equity. Foreign currency gains and losses
resulting from transactions are included in the statement of consolidated
operations.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
10
<PAGE>
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash, cash equivalents
and trade receivables. The Company sells its principal products to a large
number of customers in different industries and geographies. To reduce credit
risk, the Company performs ongoing credit evaluations of its customers'
financial conditions but does not generally require collateral. The Company
invests available cash in money market securities of various banks with high
credit ratings.
2. CHANGES IN ACCOUNTING POLICIES
Effective January 1, 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions." SFAS No. 109 requires the liability method of
accounting for income taxes rather than the deferred method previously used.
The liability approach requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. The
cumulative effect of this accounting change was to increase the 1992 net loss
by $2,400 or $.47 per share (see Note 12). SFAS No. 106 requires the accrual
method of accounting for postretirement benefits other than pensions. Prior
to 1992, the Company recognized the cost of providing postretirement benefits
other than pensions by expensing the benefits as incurred. The cumulative
effect of this accounting change was to increase the 1992 net loss by $11,000
(net of income taxes of $4,700) or $2.16 per share (see Note 13).
3. RESTRUCTURE OF OPERATIONS
The Company adopted a restructuring plan in May 1991 to enhance
shareholder value and, with various modifications over the last three years
to meet changing business conditions, has completed most aspects of the plan.
The last modification occurred in the first quarter of 1994 and is described
below. At December 31, 1994 the outstanding components of the modified
restructuring plan are to pay approximately $600 of executive severance and
sell the remaining net assets held for sale.
The 1994 statement of consolidated operations includes a restructuring
charge of $3,500 for the loss on disposal of the Company's Spanish subsidiary
net of a credit for a change in estimate on the remaining components of the
restructuring plan. In 1994, the Company sold its investment in its
subsidiary, Ferre Plana, S.A., located in Barcelona, Spain. The loss on
disposal of $6,600 included the write-off of the related intangible assets
and cumulative translation adjustment account. The 1993 restructuring charge
included a provision for the liquidation of the Assembly Systems Division
(ASD), a fastener segment product line. In 1994, the Company was able 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
were lower than estimated costs, the Company recorded a $1,500 credit for the
reversal of excess reserves associated with the 1993 restructuring charge and
a $1,600 gain on the sale of ASD's net assets.
Net assets held for sale included in the December 31, 1994 consolidated
balance sheet includes the land and building located in Puerto Rico, related
to the former site of an Unbrako manufacturing operation closed in 1992, and
a small parcel of land located in Newtown, Pennsylvania. Net assets held for
sale at December 31, 1993 also included land and a building located in
Newtown, Pennsylvania, the former site of the Company's corporate
headquarters and divisional support operations, which was sold in 1994.
During 1993, the Company initiated certain restructuring actions which
were completed in 1994 and included the following: a 10 percent decrease in
its non-direct workforce, including significant reductions in corporate and
executive staff; sale of the Company's aircraft; relocation of the corporate
headquarters; the exit of certain historically unprofitable and non-strategic
product lines; and the write-off of costs previously deferred in
contemplation of gains on the sale of the related operating assets held for
sale, required as a result of the protracted period of disposal. The 1993
statement of consolidated operations included a restructuring charge of
$32,400 to reflect the costs of these actions and higher than expected costs
of completing the previously announced plant consolidations. This
restructuring charge consisted of the cost of employee separations of
$10,000, plant consolidation costs of $7,500, operating losses of businesses
11
<PAGE>
or plants that were held for sale, sold or closed of $7,600, product line
disposal costs of $3,800 and other non-recurring restructuring costs of $3,500.
In order to maintain the Company's presence in certain key business
markets, the Company decided in the fourth quarter of 1993 to retain certain
businesses previously held for sale including the European industrial
fastener businesses in Coventry and Smethwick, England, and Barcelona, Spain;
the Unbrako fastener distribution business in Koblenz, Germany; and the hard
ferrite magnetic materials business in Sevierville, Tennessee. The Company
subsequently decided, in 1994, to sell the industrial fastener business in
Barcelona, Spain.
The 1992 statement of consolidated operations includes a restructuring
charge of $6,800. This restructuring charge resulted from the modification of
the restructuring plan to retain the fastener manufacturing plant in Shannon,
Ireland, and the Unbrako fastener distribution business in West Bromwich
(Birmingham), England, and to accelerate the consolidation of the aerospace
fastener manufacturing facilities in the United States.
4. ACCOUNTS AND NOTES RECEIVABLE
1994 1993
--------- ---------
Trade $52,791 $43,357
Notes and other 2,942 6,796
--------- ---------
55,733 50,153
Less allowance for doubtful receivables 1,299 1,185
--------- ---------
$54,434 $48,968
========= =========
5. INVENTORIES
1994 1993
--------- ---------
Finished goods $35,712 $37,323
Work-in-progress 17,335 17,115
Raw materials and supplies 13,952 15,439
Tools 10,300 10,727
--------- ---------
$77,299 $80,604
========= =========
6. INVESTMENTS IN AFFILIATES
The Company's investments in affiliates consist of a 22.05 percent
interest in Precision Fasteners Limited, Bombay, India, a 46.49 percent
interest (represented by 43.0 percent voting and 49.96 percent non-voting
shares) in Metalac S.A. Industria e Comercio, Sao Paulo, Brazil, a 50.0
percent interest in Pacific Products Limited, Guernsey, Channel Islands,
United Kingdom, and a 50.0 percent interest in National-Arnold Magnetics
Company, Adelanto, California, United States. National-Arnold Magnetics
Company was formed on January 1, 1993 as a joint venture to produce soft
magnetic tape-wound core products.
Dividends received from affiliates were $196, $42 and $44 in 1994, 1993,
and 1992, respectively. Retained earnings in 1994, 1993 and 1992 included
undistributed earnings of affiliates, net of deferred taxes, of $7,493,
$6,253 and $5,953 respectively. At December 31, 1994, the Company has
guaranteed the payment of $1,450 of the affiliates' indebtedness.
Precision Fasteners Limited executed a public issue of its stock whereby
it issued 4.8 million shares at $1.59 per share and generated proceeds of
approximately $6,900, net of related expenses. The Company elected not to
subscribe to the affiliate's public issue which reduced its percentage
ownership from 36.75 percent in 1993 to 22.05 percent in 1994. The gain on
this transaction was offset by a write down of the Company's proportionate
share of the affiliate's cumulative translation adjustment account. At
December 31, 1994 the market value of the affiliate's stock of $10,000
exceeded the carrying value of the Company's investment by approximately
$6,000.
12
<PAGE>
Summarized financial information of the unconsolidated companies is as
follows:
<TABLE>
<CAPTION>
Condensed
Statements of Earnings 1994 1993 1992
----------------------- --------- --------- ---------
<S> <C> <C> <C>
Net sales $59,314 $53,185 $44,382
Gross profit 21,651 18,649 17,396
Operating earnings 7,863 2,607 2,548
Net earnings 4,658 1,027 1,333
Condensed Balance
Sheets
-----------------------
Current assets $33,744 $25,653 $18,998
Noncurrent assets 23,931 23,888 23,553
--------- --------- ---------
$57,675 $49,541 $42,551
========= ========= =========
Current liabilities $17,660 $18,527 $14,179
Noncurrent liabilities 3,661 4,530 4,932
Shareholders' equity 36,354 26,484 23,440
--------- --------- ---------
$57,675 $49,541 $42,551
========= ========= =========
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Land $ 4,885 $ 4,487
Buildings 42,582 40,841
Machinery and equipment 128,015 127,318
Construction in progress 12,018 7,526
---------- --------
187,500 180,172
Less accumulated depreciation 99,736 93,214
---------- --------
$ 87,764 $ 86,958
========== =========
</TABLE>
Depreciation expense incurred was $12,632, $13,644 and $13,930 in 1994,
1993 and 1992, respectively.
8. NOTES PAYABLE AND CURRENT PORTION OF LONG-TERM DEBT
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Short-term bank borrowings and notes payable $ $2,262
Current portion of long-term debt 8,248 5,077
------ ------
$8,248 $7,339
====== ======
</TABLE>
Short-term lines of credit are made available to the Company by commercial
banks under customary arrangements which require the maintenance of a
satisfactory financial condition by the Company. These lines may be withdrawn
at the discretion of the bank. Unused short-term lines of credit were $2,000
as of December 31, 1994.
9. ACCRUED EXPENSES
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Employee compensation and related benefits $20,230 $17,228
Restructuring accrual 600 9,882
Other 14,360 11,775
--------- ---------
$35,190 $38,885
========= =========
</TABLE>
13
<PAGE>
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Notes Payable to Insurance Companies, 9.45%, due in equal
installments through 2002 $40,000 $45,000
Bank Credit Agreement, variable interest rate, 1994 average
interest rate 6.1% (3.7% in 1993) 19,000 36,100
Industrial Development Revenue Bond Series 1987, variable
rate demand, 1994 average interest rate 3.1% (2.7% in 1993),
due 2012 5,300 5,300
Capital lease obligations 374 505
--------- ---------
64,674 86,905
Less current installments (included in notes payable) 8,248 5,077
--------- ---------
$56,426 $81,828
========= =========
</TABLE>
Installments due during the next five years are as follows: $8,248,
$11,433, $11,433, $8,260, $5,000 in 1995 through 1999, respectively. The
carrying amount of long-term debt approximates fair value. The fair value is
estimated based on current rates available to the Company for debt of similar
remaining maturities.
In connection with the Company's restructuring plan, certain debt
agreements were amended on March 21, 1994, which modified certain financial
covenants and increased the interest rates payable under the agreements.
Effective January 1, 1994 the Company's borrowing rate was increased on the
Notes Payable to Insurance Companies from 8.7 percent to 9.45 percent and on
the Bank Credit Agreement as described below.
Under the Amended and Restated Bank Credit Agreement, the Company may borrow
up to $55,000 at any time prior to June 30, 1995. This agreement also provides
for a $5,000 sublimit, within the total $55,000 limit, which is available for
letters of credit. Borrowings under the Bank Credit Agreement bear interest at
either a Base Rate or a Eurocurrency Rate. The Base Rate is equal to the higher
of the prime rate of the agent bank or the federal funds rate plus .5 percentage
points. The Eurocurrency Rate is equal to the effective interbank rate plus a
premium which ranges from 1.0 to 1.5 percentage points based on the senior
funded indebtedness ratio and fixed charge coverage ratio. No later than June
30, 1995, the Company may, at its option, convert the amount of indebtedness
outstanding to term notes, payable in 12 equal quarterly installments commencing
on September 30, 1995. The term notes would bear interest at the rates described
above plus .5 percentage points. The Company is required to pay a commitment fee
of .3 percentage points on unborrowed amounts.
The Series 1987 Bonds were issued to finance the acquisition and
improvement of a fastener manufacturing facility and are collateralized by a
first mortgage on the facility and a bank letter of credit.
The Company is subject to a number of restrictive covenants under the
various debt agreements. These covenants, among other things, set forth
limitations on indebtedness, restrict the payment of cash dividends and
require the Company to maintain a minimum consolidated tangible net worth, a
minimum fixed charge coverage ratio and a minimum current ratio. In addition,
the Amended and Restated Bank Credit Agreement prohibits the Company from
paying cash dividends unless waived by the banks or the agreement is amended.
Certain of the Company's debt agreements contain cross default and cross
acceleration provisions.
11. COMMITMENTS AND CONTINGENCIES
Leases:
Certain of the Company's operations are conducted from leased facilities,
all of which are under operating leases which expire over the next 16 years.
The Company also has operating leases covering certain machinery and
equipment. Substantially all leases provide for the Company to pay operating
expenses. Rental expense incurred was $2,158, $2,094 and $2,635 in 1994, 1993
and 1992, respectively.
14
<PAGE>
At December 31, 1994, the future minimum annual rentals on non-cancelable
leases which have initial or remaining terms of more than one year aggregated
$15,291. The minimum payments over the next five years are as follows:
$1,919, $1,542, $1,212, $1,033 and $1,112 in 1995 through 1999, respectively.
Environmental:
The Company has been identified as a potentially responsible party by
various federal and state authorities for clean up or removal of waste from
various disposal sites. At December 31, 1994, the Company had an accrued
liability of $2,200 for environmental remediation which represents
management's best estimate of the costs related to environmental remediation
which are considered probable and can be reasonably estimated. The
measurement of the liability is evaluated quarterly based on currently
available information. As the scope of the Company's environmental liability
becomes more clearly defined, it is possible that additional reserves may be
necessary. Accordingly, it is possible that the Company's results of
operations in future quarterly or annual periods could be materially
affected. However, management believes that the overall costs of
environmental remediation will be incurred over an extended period of time
and, as a result, are not expected to have a material impact on the
consolidated financial position of the Company.
Litigation:
The Company is involved in various legal matters incidental to its
business. Although the final outcome of these matters cannot be determined,
it is management's opinion that the final resolution of these matters will
not have a materially adverse effect on the Company's consolidated financial
position.
12. INCOME TAXES
As of January 1, 1992, the provisions of Statement of Financial Accounting
Standard (SFAS) No. 109, "Accounting for Income Taxes," were adopted (see
Note 2).
The components of the provision (benefit) for income taxes from operations
were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
Currently payable:
United States
Federal $ 200 $ 100 $ 171
State and local 350 300 465
Non-United States 1,950 (604) 3,086
--------- ---------- ----------
2,500 (204) 3,722
--------- ---------- ----------
Deferred:
United States
Federal 2,017 (1,897) (2,633)
State and local (861) (897) (792)
Non-United States (736) 398 (1,597)
--------- ---------- ----------
420 (2,396) (5,022)
--------- ---------- ----------
$2,920 $(2,600) $(1,300)
========= ========== ==========
</TABLE>
The components of earnings (loss) from operations before income taxes and
cumulative effect of changes in accounting policies were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- ----------- -----------
<S> <C> <C> <C>
United States $2,231 $(33,484) $(12,975)
Non-United States 3,889 (111) 4,666
--------- ----------- -----------
$6,120 $(33,595) $ (8,309)
========= =========== ===========
</TABLE>
15
<PAGE>
Temporary differences comprising the net deferred income tax asset
(liability) on the consolidated balance sheet were as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Inventory reserves $ 5,291 $ 5,870
Postretirement benefits other than pensions 4,952 5,220
Other employee benefits and compensation 1,370 1,856
Alternative minimum tax credits 903 1,155
Advance corporate tax 1,316 1,908
Accrued expenses 2,117 5,374
Net operating loss carryforward 13,550 10,176
Valuation allowances (15,462) (17,717)
-------- --------
Deferred income tax asset 14,037 13,842
-------- --------
Depreciation (8,569) (8,608)
Other, net (2,023) (1,012)
-------- --------
Deferred income tax liability (10,592) (9,620)
-------- --------
Net deferred income tax asset $ 3,445 $ 4,222
======== ========
</TABLE>
The following sets forth the differences between the provision (benefit)
for income taxes from continuing operations computed at the United States
federal statutory income tax rate of 34 percent and that reported for
financial statement purposes:
<TABLE>
<CAPTION>
1994 1993 1992
--------- ----------- ----------
<S> <C> <C> <C>
Provision (benefit) computed at the United States
federal statutory income tax rate $ 2,081 $(11,422) $(2,825)
Earnings of certain subsidiaries taxed at different
rates (1,923) (2,278) 49
Permanent items 2,168 (1,612) 658
State income tax, net of federal benefit 177 132 238
Loss of unused net operating loss carryforward 2,176
Valuation allowances (2,255) 12,966 549
Other, net 496 (386) 31
--------- ----------- ----------
Provision (benefit) for income taxes $ 2,920 $ (2,600) $(1,300)
========= =========== ==========
</TABLE>
In 1994, the Company sold its Spanish subsidiary that had net operating
loss carryforwards (NOLs). The tax benefit of these NOLs of $2,176 were fully
offset by a valuation allowance at December 31, 1993. In 1994, the Company
wrote-off the deferred tax benefit of these NOLs and made a corresponding
reduction to its valuation allowance. At December 31, 1994, the Company had
United States NOLs of $39,800 which begin to expire in 2008.
The Company has recorded a net deferred tax asset of approximately $3.5
million at December 31, 1994, which includes a partial benefit related to the
United States NOLs. Realization of the net deferred tax asset is dependent on
generating sufficient taxable income prior to expiration of the NOLs.
Although realization is not assured, management believes it is more likely
than not that the recorded net deferred tax asset will be realized.
United States income taxes have not been provided on the unremitted
earnings of certain subsidiaries located outside the continental United
States of approximately $39,600 because, in management's opinion, such
earnings are required in these operations, will be remitted in a tax-free
liquidation, or will be remitted as dividends with taxes substantially offset
by foreign tax credits. It is not practicable to determine the amount of
unrecognized deferred tax liabilities associated with such earnings.
16
<PAGE>
13. RETIREMENT PLANS AND OTHER BENEFITS
The Company sponsors two defined contribution plans. Participation in one
of these plans is available to substantially all domestic salaried and hourly
employees. Participants may make voluntary pre-tax or after-tax contributions
to the plans up to 16 percent of their compensation (as defined). The Company
contributes a percentage of employee contributions based upon the number of
years of employee service to the salaried plan. The Company's contribution
expense for the salaried plan was $199 in 1994, $228 in 1993 and $225 in
1992.
The Company sponsors a number of defined benefit pension plans covering
substantially all employees and a defined benefit plan covering non-employee
directors. The benefits of most plans are based primarily on years of service
and compensation however, hourly plans covering union employees provide
pension benefits at stated amounts for each year of service. Plan assets
consist principally of common stocks, pooled equity funds, corporate bonds
and United States Government obligations. At December 31, 1994 and 1993, the
plan's assets included Company stock with fair values of $5,217 and $3,938,
respectively. There were no dividends received from Company stock for the
year ended December 31, 1994. Plan income included dividend income from
Company stock of $217 and $263 for the years ended December 31, 1993 and
1992, respectively.
Effective December 31, 1994, the Company adopted certain amendments to its
principal United States pension plan to enhance the value and improve the
portability of participants' benefits while allowing the Company to better
manage its pension expense. These amendments converted this United States
defined benefit plan from an average pay plan to a cash balance plan. These
amendments decreased the projected benefit obligation by eliminating this plan's
provision for future salary increases and resulted in an unrecognized prior
service gain of approximately $14 million at December 31, 1994.
The following table sets forth the funded status of these plans at
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---------------------------------- ----------------------------------
Plans whose Plans whose Plans whose Plans whose
assets exceed accumulated assets exceed accumulated
accumulated benefits accumulated benefits
benefits exceed assets benefits exceed assets
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Plan assets at fair value $ 95,484 $ 7,351 $ 103,792 $ 7,849
Actuarial present value of benefit
obligations:
Vested benefits (75,056) (12,721) (77,005) (13,729)
Nonvested benefits (1,800) (1,446) (1,975) (1,788)
--------------- --------------- --------------- ---------------
Accumulated benefit obligation (76,856) (14,167) (78,980) (15,517)
Projected future salary increases (12,333) (387) (24,889) (366)
--------------- --------------- --------------- ---------------
Projected benefit obligation (89,189) (14,554) (103,869) (15,883)
--------------- --------------- --------------- ---------------
Plan assets in excess of (less than)
projected benefit obligation 6,295 (7,203) (77) (8,034)
Unrecognized net (asset) obligation at
date of initial application (6,028) 384 (6,596) 425
Unrecognized prior service (gain) cost (12,552) 1,001 2,690 1,047
Unrecognized net loss 24,148 2,092 15,273 3,002
Recognized minimum liability (3,113) (3,910)
--------------- --------------- --------------- ---------------
Prepaid (accrued) pension cost at
December 31 $ 11,863 $ (6,839) $ 11,290 $ (7,470)
=============== =============== =============== ===============
</TABLE>
Under the requirements of Statement of Financial Accounting Standards
(SFAS) No. 87, "Employers' Accounting for Pensions," an additional minimum
pension liability for certain plans, representing the excess of accumulated
benefits over plan assets and accrued pension costs, was recognized at
December 31, 1994 and 1993. A corresponding amount was recognized as an
intangible asset, to the extent of unrecognized prior service cost and
unrecognized transition obligation, with the balance recorded as a separate
reduction of shareholders' equity.
17
<PAGE>
The following weighted average assumptions were used to determine the
return on plan assets and the projected benefit obligation:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
Discount rate 8.9% 7.3% 8.8%
Rate of return on plan assets 9.4% 9.5% 10.1%
Rate of future compensation increase 5.7% 4.7% 6.1%
</TABLE>
The net periodic pension cost incurred for 1994, 1993 and 1992,
respectively for these plans, included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ----------
<S> <C> <C> <C>
Service cost $ 3,881 $ 3,322 $ 3,644
Interest cost 9,148 9,764 9,777
Actual return on plan assets (4,267) (9,891) (10,987)
Net amortization and deferral (5,961) (1,760) (981)
--------- --------- ----------
Net periodic pension cost $ 2,801 $ 1,435 $ 1,453
========= ========= ==========
</TABLE>
In addition to the 1993 pension cost noted above, the early retirement
program offered to eligible employees at the Company's Jenkintown
manufacturing facility resulted in a one-time charge of $1,748 for enhanced
benefits and lump sum distributions. This charge is reflected in the
statement of consolidated operations as a component of the restructuring
charge.
Other Postretirement Benefits
In addition to providing pension benefits, the Company and certain of its
subsidiaries provide postretirement health care and life insurance benefits.
All full-time nonbargaining employees hired prior to January 1, 1990 are
eligible for medical benefits under a defined dollar benefit plan if they
retire with at least 10 years of service and meet certain age requirements.
Generally, Company-provided medical benefits terminate when covered
individuals become eligible for Medicare benefits. The medical plan is
contributory, with retiree contributions adjusted annually. The life
insurance plan covers substantially all employees who retire from full-time
employment after age 55 with at least 10 years of service. The life insurance
plan is non-contributory. Both of the Company's postretirement plans are
unfunded.
As of January 1, 1992, the provisions of Statement of Financial Accounting
Standard SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions," were adopted (see Note 2). Effective in 1994, the
Company implemented certain programs, such as required participation in
managed care programs when available, intended to stem rising costs. These
amendments resulted in an unrecognized prior service gain of $6,376, which is
being amortized as a reduction in postretirement benefit cost beginning in
1994. An assumed discount rate of 8.5 percent and 7.25 percent was used to
determine the accumulated postretirement benefit obligation at December 31,
1994 and 1993, respectively. The increased discount rate lowered the
accumulated postretirement benefit obligation at December 31, 1994 by
approximately $850.
The funded status of the plans and amounts recognized in the Company's
consolidated financial statements as of December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees $ 6,891 $ 9,739 $ 7,660
Fully eligible actives 1,634 3,117 3,404
Other actives 2,136 4,075 4,450
--------- --------- ---------
Total accumulated postretirement benefit
obligation 10,661 16,931 15,514
Unrecognized prior service gain 5,845
Unrecognized net gain (loss) (2,004) (1,579) 418
--------- --------- ---------
Long-term postretirement benefit obligation $14,502 $15,352 $15,932
========= ========= =========
</TABLE>
18
<PAGE>
Net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
Service cost $ 205 $ 288 $ 329
Interest cost 836 1,324 1,296
Unrecognized prior service gain (531)
Net amortization and deferral 150
------- -------- -------
Net periodic postretirement benefit cost $ 660 $1,612 $1,625
======= ======== =======
</TABLE>
The decline in the 1994 benefit cost is primarily attributable to the plan
amendments, reflecting reductions in service and interest costs as well as
the amortization of the unrecognized prior service gain.
A 7.5 percent annual rate of increase in the per capita costs of covered
health care benefits was assumed for 1995, gradually decreasing to 5 percent
by the year 2000. Increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1994 by $111 and increase the interest
cost component of net periodic postretirement benefit cost for 1994 by $14.
As a result of the Company's decision to significantly downsize its Santa
Ana, California manufacturing operation and close its Puerto Rico
manufacturing facility, a $800 gain related to the curtailment of its
postretirement benefit plans was recognized in 1993. This curtailment gain is
reflected in the statement of consolidated operations as a component of the
restructuring charge.
Postemployment Benefits
As of January 1, 1994, the provisions of Statement of Financial Accounting
Standards SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
were adopted. Since the Company previously accounted for most of these
benefits on an accrual basis, the incremental after-tax impact of accruing
the cost of these benefits for 1994 was not material.
14. STOCK OPTIONS
The Company has a nonqualified stock option plan which continues to the
year 2000. Under the plan, the Company may grant up to an aggregate of
1,350,000 shares in either stock options (fixed price or variable price) or
restricted shares to officers and key employees. Additionally, non-employee
directors may elect to receive discounted price options in lieu of all or a
portion of their annual retainer fee. The number of such options, if elected,
is based upon market value at date of grant. The exercise price of
outstanding options is determined as follows: fixed price options are granted
at market value on date of grant; and discounted price options are granted at
par value of the common stock on date of grant.
At December 31, 1994, 43 individuals held options to purchase an aggregate
of 699,102 shares (fixed 685,441, discounted 13,661). The fixed price options
outstanding under the plan have exercise prices ranging from $20.50 to $45.38
per share and expiration dates ranging from December 2, 1997 to July 18,
2004. The discounted price options outstanding have an exercise price of
$1.00 and expiration dates ranging from May 31, 1999 to May 31, 2004. No
variable price options or restricted shares were outstanding at December 31,
1994.
19
<PAGE>
Changes in shares under option were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
Shares under option at beginning of year 661,097 509,435 521,452
Additions (deductions):
Options granted 92,009 152,862 20,637
Options exercised (17,169) (1,200) (22,154)
Options expired or terminated (36,835) (10,500)
-------- ------- -------
Shares under option at end of year 699,102 661,097 509,435
======== ======= =======
Option price per share of options
exercised during the year $19.94-$25.00 $21.44 $21.44
Options exercisable at end of year 450,806 497,917 424,660
Exercise price of options outstanding:
Total $18,159 $ 17,694 $14,473
Per share (fixed) $20.50-$45.38 $19.94-$45.38 $19.94-$45.38
Per share (discounted) $1.00 $1.00 $1.00
Shares available for future option grants 116,620 171,794 74,656
</TABLE>
15. PER SHARE DATA
The weighted average number of shares used to compute per share data was
5,131,900 in 1994, 5,105,706 in 1993, and 5,097,994 in 1992.
Common share equivalents in the form of stock options are excluded from
the calculation of per share data as their dilutive effect is not material,
or their effect is antidilutive.
16. PREFERRED STOCK PURCHASE RIGHTS
The Board of Directors declared a dividend distribution of one Right for
each outstanding share of common stock, as provided in the Rights Agreement
dated November 11, 1988. The Rights Agreement was amended on January 22,
1991. Under the Rights Agreement as amended, each Right may be exercised,
under certain conditions, to purchase one one-hundredth of a share of Series
A Junior Participating Preferred Stock, par value $1 per share, for $125. The
Rights are not exercisable or transferable apart from the common stock until
10 business days after a public announcement that a person or group has
acquired or intends to commence a tender offer for 10 percent or more of the
outstanding common stock. The Board of Directors may, at its option and under
certain conditions, exchange all of the Rights not owned by the 10 percent
holder for an equal number of shares of common stock. The Rights, which
expire on November 21, 1998, do not have voting or dividend rights and may be
redeemed by the Company at a price of $.01 per Right at any time until 10
business days following the acquisition of 10 percent or more of the
Company's common stock.
In the event that the Company is acquired in a merger or other business
combination transaction, or 50 percent or more of its assets or earning power
is sold, each Right will entitle the holder to receive from the surviving or
acquiring corporation, for the exercise price, common stock having a market
value equal to two times the exercise price of the Right. Alternatively, if a
10 percent holder were to acquire the Company in a business combination
transaction in which the Company and its stock survive, or were to engage in
certain "self-dealing" transactions, each Right not owned by the 10 percent
holder would have the right to receive common shares having a market value of
two times the exercise price of the Right.
20
<PAGE>
17. FORWARD EXCHANGE CONTRACTS
The Company enters into forward exchange contracts primarily as hedges
relating to identifiable currency positions. These financial instruments are
designed to minimize exposure and reduce risk from exchange rate fluctuations
in the regular course of business. Gains and losses on forward exchange
contracts which hedge exposures on firm foreign currency commitments are
deferred and recognized as adjustments to the bases of those assets. Gains
and losses on forward exchange contracts which hedge foreign currency assets
or liabilities are recognized in income as incurred. Such amounts effectively
offset gains and losses on the foreign currency assets or liabilities that
are hedged. The cash flow from such contracts is classified in the same
category as the transaction hedged in the statements of consolidated cash
flows.
At December 31, 1994, the Company has outstanding contracts maturing in
1995 that have, in the aggregate, a United States dollar contract value
equivalent of $14,888, which approximates fair value based on rates available
to the Company at December 31, 1994.
18. RESEARCH AND DEVELOPMENT
Research and development costs incurred were $4,727, $5,050 and $6,604 for
1994, 1993 and 1992, respectively.
19. INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company operates in two industry segments: high-strength precision
mechanical fasteners and precision components (fasteners); and superalloys in
ingot form and magnetic materials (materials). Principal markets include
aerospace, transportation, industrial machinery and equipment, and medical
equipment. Inter-area sales consist of products similar to those offered to
unaffiliated customers and are accounted for on the basis of third party
sales price. Interest income and expense, equity in earnings of affiliates
and other income and expenses are excluded from the determination of segment
operating earnings.
Industry Segments
-----------------
<TABLE>
<CAPTION>
1994 1993 1992
----------- ------------ -----------
<S> <C> <C> <C>
Net sales:
Fasteners $239,561 $226,791 $262,523
Materials 109,344 92,303 96,908
----------- ------------ -----------
Net sales $348,905 $319,094 $359,431
=========== ============ ===========
Operating earnings (loss):
Fasteners $ (2,709) $ (34,118) $ (9,214)
Materials 10,687 5,031 6,108
----------- ------------ -----------
Operating earnings
(loss) $ 7,978 $ (29,087) $ (3,106)
=========== ============ ===========
Identifiable assets:
Fasteners $211,309 $211,097 $220,510
Materials 75,570 66,263 61,955
Net assets held for sale 2,367 8,619 13,143
----------- ------------ -----------
Total assets $289,246 $285,979 $295,608
=========== ============ ===========
</TABLE>
21
<PAGE>
Depreciation and Amortization and Capital Additions:
<TABLE>
<CAPTION>
Depreciation and Amortization Capital Additions
---------------------------------- -----------------------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fasteners $ 9,936 $11,569 $12,691 $11,110 $ 6,540 $ 8,270
Materials 3,127 2,915 2,652 6,505 5,708 3,285
--------- --------- --------- ---------- --------- ---------
Total $13,063 $14,484 $15,343 $17,615 $12,248 $11,555
========= ========= ========= ========== ========= =========
</TABLE>
Geographic Areas
----------------
<TABLE>
<CAPTION>
1994 1993 1992
---------- ------------ -----------
<S> <C> <C> <C>
Net sales:
United States $275,069 $247,380 $267,971
Europe 79,253 83,437 99,037
Other 14,980 13,309 12,911
Inter-area (20,397) (25,032) (20,488)
---------- ------------ -----------
Net sales $348,905 $319,094 $359,431
========== ============ ===========
Operating earnings (loss):
United States $ 3,746 $ (29,986) $ (7,369)
Europe 2,108 (168) 4,038
Other 1,597 1,531 902
Eliminations 527 (464) (677)
---------- ------------ -----------
Operating earnings
(loss) $ 7,978 $ (29,087) $ (3,106)
========== ============ ===========
Identifiable assets:
United States $197,252 $193,189 $198,391
Europe 66,336 66,677 67,435
Other 24,675 21,492 20,050
Net assets held for sale 2,367 8,619 13,143
Eliminations (1,384) (3,998) (3,411)
---------- ------------ -----------
Total assets $289,246 $285,979 $295,608
========== ============ ===========
</TABLE>
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
THE SHAREHOLDERS AND BOARD OF DIRECTORS
SPS TECHNOLOGIES, INC.:
We have audited the accompanying consolidated balance sheets of SPS
Technologies, Inc. and subsidiaries as of december 31, 1994 and 1993 and the
related statements of consolidated operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1994.
these financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SPS
Technologies, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postretirement
benefits other than pensions in 1992.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
February 10, 1995
23
<PAGE>
Summary of Quarterly Results (unaudited)
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------
March June September December
31 30 30 31
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1994
----
Net sales $81,581 $87,865 $88,472 $ 90,987
Gross profit 13,028 14,813 14,812 13,672
Net earnings (loss) (4,140) 3,700 1,990 1,650
Net earnings (loss) per share (.81) .72 .39 .32
1993
----
Net sales $87,283 $85,459 $74,394 $ 71,958
Gross profit 14,121 14,824 11,954 8,988
Net earnings (loss) 1,630 1,378 (6,840) (27,163)
Net earnings (loss) per share .32 .27 (1.34) (5.32)
</TABLE>
1994
----
First quarter results include a restructuring charge of $6,600 due to the
disposal of a subsidiary and a $1,500 restructuring credit for the reversal
of excess reserves (see Note 3).
Second quarter results include a restructuring credit of $1,600 for the
gain on the sale of the Assembly Systems Division.
Fourth quarter results include a gain on the sale of real estate of $2,900
and increases in provisions for slow moving inventory and environmental
remediation of approximately $2,400.
1993
----
Fourth quarter results include a restructure charge of $24,500 due to
modifications and reassessments to the Company's restructuring plan (see Note
3). Sales and gross profit for the first three quarters of 1993 have been
reclassified to reflect the modifications. These modifications also resulted
in restructuring credits of $500, $400 and $400 to the first, second and
third quarters of 1993, respectively.
Third quarter results include a restructure charge of $8,800 as a result
of additional manufacturing consolidation costs, workforce reductions and the
revaluation of certain assets held for sale.
COMMON STOCK INFORMATION
The price range of the Company's common stock traded in its principal
market, the New York Stock Exchange, and quarterly dividends per share during
the last eight quarters were as follows:
<TABLE>
<CAPTION>
Dividend
Quarter Ended High Low Declared
------------------ -------- -------- ----------
<S> <C> <C> <C>
December 31, 1994 $26.38 $22.00 $ --
September 30, 1994 27.38 25.25 --
June 30, 1994 27.28 21.50 --
March 31, 1994 24.50 18.75 --
December 31, 1993 $30.13 $15.75 $ --
September 30, 1993 29.75 26.38 .32
June 30, 1993 28.00 24.00 .32
March 31, 1993 24.75 20.00 .32
</TABLE>
On December 14, 1993, the Board of Directors elected to suspend payment of
the Company's quarterly dividend. Under the terms of the current debt
agreements the Company may not declare a dividend, unless the terms are
waived by the lenders or the agreements are amended. As of March 6, 1995, the
approximate number of registered shareholders was 1,325.
24
<PAGE>
Selected Financial Data
(Thousands of dollars except per share data)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $348,905 $319,094 $359,431 $408,499 $440,996
Earnings (loss) from
continuing operations 3,200 (30,995) (7,009) 5,612 (9,961)
Discontinued operations --
Estimated gain (loss) on
disposal 990 (1,500)
Cumulative effect of changes
in accounting policies (13,400)
Net earnings (loss) 3,200 (30,995) (20,409) 6,602 (11,461)
----------- ---------- --------- ---------- ----------
Total assets 289,246 285,979 295,608 318,323 368,896
Long-term debt 56,426 81,828 63,321 61,110 91,325
Property, plant and
equipment additions 17,615 12,248 11,555 11,118 19,440
----------- ---------- --------- ---------- ----------
Per Share Data:
Earnings (loss) from
continuing operations .62 (6.07) (1.37) 1.10 (1.98)
Discontinued operations --
Estimated gain (loss) on
disposal .20 (.30)
Cumulative effect of changes
in accounting policies (2.63)
Net earnings (loss) .62 (6.07) (4.00) 1.30 (2.28)
Cash dividends .96 1.28 1.28 1.28
Shareholders' equity 24.18 20.14 27.98 35.34 35.78
----------- ---------- --------- ---------- ----------
</TABLE>
Results for 1994, 1993 and 1992 include a net restructuring charge of
$3,500, $32,400 and $6,800, respectively. See Note 3 to consolidated
financial statements.
The Company changed its accounting policies, effective January 1, 1992, to
accrue for postretirement benefits other than pensions and account for
deferred income taxes under the asset and liability method. See Note 2 to
consolidated financial statements.
25
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
INTRODUCTION
In 1994, the Company completed programs that reduced the Company's cost
structure and improved its operating performance. The Company completed a 10
percent reduction in its non-direct work force, sold non-productive
Corporate assets and exited certain historically unprofitable product lines.
In addition, the Company raised additional equity through the completion of a
Rights Offering in December 1994. These actions were taken to improve
profitability and liquidity and have positioned the Company to take advantage
of future growth in its served markets.
1994 COMPARED TO 1993
Net Sales
Sales in 1994 of $348.9 million increased by $29.8 million, or 9.3
percent, from 1993. Excluding 1993 sales of the fastener operation in Spain
and the Assembly Systems Division (both businesses have been sold by the
Company), sales increased by $45.1 million, or 14.8 percent, in 1994.
Excluding 1993 sales of businesses sold, fastener segment sales increased
$28.1 million, or 13.3 percent, as sales increased in all served markets of
the fastener segment. Despite continued weakness in new aircraft orders, the
Company achieved an $11.8 million increase in aerospace fastener sales by
concentrating on the repair, replacement and retrofit markets of this
business. Sales in the transportation and industrial fastener markets
increased by $16.3 million, or 14.6 percent, due to the strengthening
automotive business in the United States and western Europe, primarily the
United Kingdom. The Company's automotive and Unbrako product manufacturing
operations in England and Ireland have initiated steps to gradually increase
capacity to meet the long-term demands of this market.
Materials segment sales increased by $17 million, or 18.5 percent, as
sales of magnetic materials and superalloys increased from the prior year.
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. All sales of the
materials segment are sourced from the United States and are classified as
such in the geographic area information presented in Note 19 to the financial
statements.
Operating Earnings
The operating loss for the fastener segment of $2.7 million in 1994 is
attributed to the 1994 restructuring charge. Excluding restructuring charges,
operating results for the fastener segment improved from a loss of $2.1
million in 1993 to earnings of $791 thousand in 1994.
The improvement in earnings results from avoiding losses generated in 1993
from the manufacturing operations in Spain and the Assembly Systems Division
(these businesses were sold). In addition, the 1993 manufacturing
inefficiencies that resulted from the 1993 start-up of fastener operations
transferred among facilities significantly decreased in 1994. Despite an
increase in sales to the United States transportation and industrial fastener
markets, operating earnings did not improve for the Company's North American
industrial and Unbrako fastener manufacturing operations. The Company's
Cleveland, Ohio plant incurred excess manufacturing costs caused by certain
material and equipment problems. The Company has invested in new
manufacturing equipment, expanded employee training programs and reorganized
certain manufacturing operations intended to improve future performance at
the Cleveland, Ohio plant.
26
<PAGE>
In the materials segment, operating earnings increased from $5 million, or
5.5 percent of sales in 1993, to $10.7 million, or 9.8 percent of sales in
1994. 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. As a result of new products and reduced manufacturing
overhead, the Company expects continued improvement in the operating results
of the materials segment.
United States operating earnings improved from a $30 million loss in 1993
to a $3.7 million profit in 1994. In 1993, the Company incurred a $26.1
million United States restructuring charge compared to a $3.1 million
restructuring credit in 1994. A $5.7 million increase in the operating
earnings of the material segment also contributed to the increase in the
United States operating earnings. The 1994 and 1993 European operating
results were adversely affected by the Company's Spanish subsidiary. The sale
of the Spanish subsidiary resulted in a $6.6 million loss on disposal in 1994
and in 1993 it had a $1.8 million operating loss.
Other Income and Expense
Interest expense increased by $1.0 million in 1994 due to an increase in
interest rates and higher levels of corporate debt. As a result of improved
operating performance by the magnetic materials joint venture in Adelanto,
California and the Company's Brazilian affiliate, the Company's equity in
earnings of affiliates improved by $1.2 million in 1994. In 1994, the Company
sold real estate located in Newtown, Pennsylvania and the Company's aircraft.
The sale of these assets contributed to the $2.5 million net increase in
other income.
Income Taxes
For 1994, the effective tax rate is higher than the United States federal
statutory tax rate primarily due to the inability to recognize a full tax
benefit on the loss on disposal of the Company's subsidiary in Spain.
Net Earnings
The Company recorded net earnings for 1994 of $3.2 million, or $.62 per
share, compared to a net loss of $31 million, or $6.07 per share, in 1993.
Excluding all restructuring charges, net earnings for 1994 were $6.7 million,
or $1.31 per share, compared to a net loss for 1993 of $795 thousand, or $.15
per share.
Orders and Backlog
Incoming orders in 1994 were $365.4 million, compared to $333.7 million in
1993. Excluding orders of businesses sold, orders increased in all markets
served by the Company, reflecting greater demand for the Company's products.
The backlog in orders at December 31, 1994, was $98.5 million, compared to
$89 million at the end of 1993 and $84.5 million at December 31, 1992.
Environmental
The Company has been identified as a potentially responsible party by
various federal and state authorities for clean up or removal of waste from
various disposal sites. The cost of remediation will depend upon numerous
factors, including the number of parties found liable at each environmental
site and their ability to pay, the outcome of negotiations with regulatory
authorities, and the years of remedial activity required.
At December 31, 1994, the accrued liability for environmental remediation
represents management's best estimate of the probable and reasonably
estimable costs related to environmental remediation. The measurement of the
liability is evaluated quarterly based on currently available information.
SUMMARY OF RESTRUCTURING ACTIONS
As discussed in Note 3 to the financial statements, the Company sold its
Spanish subsidiary, Ferre Plana, S.A., and a fastener segment product line,
the Assembly Systems Division (ASD), in 1994. Ferre Plana, S.A., which
27
<PAGE>
manufactured commodity industrial fasteners, had incurred cumulative operating
losses of $9.4 million since it was acquired in 1990, and would have incurred
additional losses and required a substantial cash investment in 1994. ASD, which
manufactured computer-controlled fastener tightening equipment, had accumulated
operating losses totaling $11.6 million over the past five years. The exit of
these historically unprofitable manufacturing operations allowed management to
focus on and make needed investments into the Company's more profitable
businesses.
During 1994, the Company accomplished the following components of the
restructuring plan:
1) The non-direct workforce was reduced by 10 percent.
2) The Company's aircraft was sold for $1.1 million.
3) The corporate and divisional support staff from the Newtown,
Pennsylvania facility were relocated to rented office space in
Jenkintown, Pennsylvania and to the related divisions.
4) The Newtown, Pennsylvania facility was sold for $10 million.
5) The Company entered into agreements to lease the remaining available
space in the Santa Ana, California facility starting in 1995.
As of December 31, 1994, the following items remain to be accomplished to
complete the Company's restructuring plan: sell the Unbrako manufacturing
facility in Puerto Rico that was closed in 1992, sell the remaining parcel of
land located in Newtown, Pennsylvania and make remaining severance payments
of approximately $600 thousand.
During 1993, the Company accomplished the following components of the
restructuring plan:
1) The transfer of aerospace manufacturing operations from the Santa Ana,
California fastener plant to the Company's facilities in Salt Lake City,
Utah and Jenkintown, Pennsylvania was completed. While some operations
were retained at the Santa Ana facility, the majority of the plant will
be leased to third parties in 1995.
2) The Company moved all of the Jenkintown, Pennsylvania UNBRAKO (Registered
Trademark) socket screw manufacturing operations to Cleveland, Ohio, for
consolidation with the UNBRAKO (Registered Trademark) production
transferred to Cleveland from Puerto Rico.
3) Unbrako S.r.l., a distribution and marketing subsidiary in Milan, Italy
was sold and SPS-Unbrako S.A., the Company's distribution and marketing
subsidiary located in Paris, France was closed and distribution
activities in France were transferred to independent distributors.
While the consolidations in items 1 and 2 above caused manufacturing
disruptions in 1993, they permitted more effective utilization of the
remaining plants in 1994. As discussed in Note 3 to the financial statements,
the Company decided in 1993 to retain certain businesses previously held for
sale.
During 1992, the Company completed the transfer of manufacturing
operations from the Puerto Rico manufacturing facility to Cleveland, Ohio.
The Puerto Rico manufacturing facility was closed and is currently held for
sale. The distribution business in Copenhagen, Denmark was sold in 1992. As
discussed in Note 3 to the financial statements, the Company decided in 1992
to retain two businesses previously held for sale.
Consistent with the restructuring plan, the Company has reduced employment
in all operations. Since the end of 1991, the work force employed in
continuing businesses has been reduced by 898 employees, or 20 percent. A
portion of the reduction in employment was achieved through the
implementation of an early retirement program in 1993. The cost of this
program and other severance costs were included in the 1993 restructuring
charge.
28
<PAGE>
Rollforward of the Restructure Accrual
The 1993 consolidated statement of operations contained a pre-tax
restructuring charge of $32.4 million. At December 31, 1993, the Company had
a $9.9 million accrual on its consolidated balance sheet related to various
aspects of the restructuring plan. During 1994, the Company has revised and
completed various aspects of the restructuring plan as reflected in the
following table:
Charge (Credit) to Accrual
(Thousands of dollars)
<TABLE>
<CAPTION>
Plant Product
Termi- Consol- Line
nation idation Disposal
Total Pay Cost Cost (ASD) Other
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $(9,882) $(4,600) $(1,600) $(2,800) $ (882)
Cash payments and wind-down losses 6,182 3,800 1,400 200 782
Revision of estimated costs to complete
restructuring 1,500 200 200 1,000 100
Gain of the sale of ASD's net assets 1,600 1,600
---------- ---------- --------- ---------- ---------
Balance at December 31, 1994 $ (600) $ (600) $ 0 $ 0 $ 0
========== ========== ========= ========== =========
</TABLE>
1993 COMPARED TO 1992
Net Sales
Sales in 1993 of $319.1 million declined by $40.3 million, or 11.2
percent, from 1992 amounts. Fastener segment sales declined $35.7 million, or
13.6 percent, primarily due to the effect of exchange rate changes which
affected sales by $12 million and also due to reduced shipments to the
aerospace market. Aerospace fastener sales declined by $27.8 million, or 21.7
percent, due to continued decreases in commercial and military aircraft
production and production disruptions from the start-up of aerospace fastener
operations transferred from another facility. Transportation and industrial
fastener sales declined by $7.9 million, or 5.9 percent, due to the
continuing recession in the European markets. In the United States, sales
were adversely affected by the floods in the Midwest; however, shipments to
the automobile industry were still higher compared to 1992 reflecting the
strengthening domestic automotive business.
Materials segment sales decreased $4.6 million, or 4.8 percent, as the
increased sales of magnetic materials ($1.9 million) were offset by a greater
decline in the sales of superalloys ($6.5 million). Sales of magnetic
materials increased due to the acquisition of a bonded magnet business in
December 1992 and increased demand from automotive and computer markets.
Sales of proprietary superalloys increased from the same periods in 1992, but
lower sales of stainless steel alloys and continued weakness in the aerospace
market produced an overall drop in superalloy sales.
Operating Earnings
The operating loss for the fastener segment of $34.1 million in 1993 is
attributed largely to the 1993 restructuring charge. Other factors
contributing to the fastener segment operating loss were decreases in sales
volume, continued pressure to reduce prices and manufacturing inefficiencies
resulting from the start-up of fastener operations transferred from other
facilities. The Company's operating earnings before restructuring charges was
essentially unchanged on sharply lower sales volume, reflecting cost
reduction actions taken in 1993. The primary source of cost reduction in 1993
was a reduction in the work force of 447 employees since the end of 1992.
29
<PAGE>
In the material segment, operating earnings decreased from $6.1 million,
or 6.3 percent of sales in 1992, to $5 million, or 5.5 percent of sales in
1993. The decrease in the sales volume of superalloy sales resulted in lower
gross profit amounts ($1.4 million) which were partially offset by a decrease
in selling, general and administrative expenses ($300 thousand).
The operating losses in the United States of $30 million in 1993 and $7.4
million in 1992 are attributed largely to the 1993 and 1992 restructuring
charges. Exclusive of restructuring charges, domestic operating earnings in
both years were approximately breakeven. The domestic operating earnings of
the materials segment of $5 million in 1993 and $6.1 million in 1992 were
entirely offset by operating losses in the domestic fastener segment.
The 1993 European operating loss of $168 thousand compares unfavorably to
the 1992 operating profit of $4 million. The European operating results were
adversely affected by the industrial fastener manufacturing operation in
Barcelona, Spain. The Spanish operation suffered from manufacturing
inefficiencies and a declining automotive market.
Other Income and Expense
Higher levels of corporate debt offset by a decrease in interest rates
resulted in level amounts of interest expense compared to 1992. While debt
increased by $18.8 million in 1993, the average interest rate of the Bank
Credit Agreement decreased from 4 percent in 1992 to 3.7 percent in 1993. In
addition to the decreased interest rate of the Bank Credit Agreement, $5
million of the Notes Payable to insurance companies at a fixed rate of 8.7
percent was paid with Bank Credit Agreement loan proceeds.
Income Taxes
The income tax benefit of the Company's 1993 loss from continuing
operations was lower than the benefit computed at the United States federal
statutory tax rate primarily due to operating losses in the United States and
Spain for which a benefit is not currently recognizable.
Net Earnings
The Company recorded a net loss for 1993 of $31 million, or $6.07 per
share, compared to a net loss of $20.4 million, or $4.00 per share, in 1992.
The loss in 1993 is attributed to the pre-tax restructuring charge of $32.4
million. The 1992 loss results from the pre-tax restructuring charge of $6.8
million and a charge for changes in accounting policies of $13.4 million.
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 by or used for operating activities, investing
activities and financial activities is summarized in the statements of
consolidated cash flows. The 1994 cash flow provided from operating
activities increased from 1993 due to a decrease of $8.2 million in cash
expenditures to fund plant consolidations, severance payments and other
restructuring activities and due to higher levels of accounts payable and
accrued expenses (net of the restructure accrual) which resulted from
aggressive cash management and higher overall business activity. The above
factors were offset by the 1994 increase in receivables that resulted from
higher sales activity and the 1993 collection of a long-term receivable of
$2.5 million reflected as a source of cash in the "other assets and
liabilities, net" line of the 1993 statement of consolidated cash flow.
The changes in cash used by investing activities is attributed to the 1994
proceeds from the sale of the Newtown facility ($10 million), sale of the
Company's aircraft ($1.1 million) and the sale of the Assembly Systems
Division ($2.1 million) compared to the 1993 proceeds from the sale and
liquidation of two distribution businesses in Europe ($2.5 million) and 1992
acquisition cost of a new bonded magnet business for the materials segment
30
<PAGE>
($3.9 million). The Company increased capital expenditures from $12.2 million in
1993 to $17.6 million in 1994 and has budgeted $20.6 million for 1995. The
increase in capital expenditures from prior year levels is necessary in order to
achieve the manufacturing excellence required to service our customers and
achieve an adequate return on shareholders' equity.
In December 1994, the Company generated cash flow from the distribution to
the Company's shareholders of record as of November 28, 1994, transferable
rights to subscribe for the purchase of 512,561 shares of common stock
previously held in the Company's treasury at a subscription price of $24.50
per share. Proceeds, net of related expenses, from this rights offering of
$12.2 million were used to reduce debt under the Bank Credit Agreement and
for other general corporate purposes.
The Company's total debt to equity ratio was 52 percent at December 31,
1994, 87 percent at December 31, 1993 and 49 percent at December 31, 1992.
Total debt was $64.7 million, $89.2 million and $70.4 million at the end of
1994, 1993 and 1992, respectively. As of December 31, 1994, under the terms
of the existing credit agreements, the Company is permitted to incur an
additional $43 million in debt and prohibited from paying cash dividends
unless waived by the banks or the agreements are amended. Additional details
of the credit agreement with commercial banks, the industrial bonds and the
notes payable to insurance companies are provided in Note 10 to the financial
statements.
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 21, 1994. During the second
quarter of 1994, the Company increased its borrowing capacity under the bank
credit agreement by $5 million, which increased the total available
borrowings under the facility to $55 million. Additionally, the Company
financed $2.5 million of equipment under operating leases.
Proceeds from the sale of the Newtown, Pennsylvania property and the sale
of the Company's common stock pursuant to the rights offering triggered the
"Mandatory Prepayment" provisions of the Company's debt agreements. Under
these provisions, the Company would be required to prepay debt and/or have
its debt capacity reduced if the aggregate net after-tax proceeds from these
transactions exceeded certain limits. The limits are $8 million from the sale
of assets and $10 million raised from new equity. In December 1994, the
Company obtained waivers from the lending institutions with regard to these
"Mandatory Prepayment" provisions for the transactions described.
31
<PAGE>
SPS FACILITIES
(PHOTO) Aerospace Products Division/Santa Ana, CA
(PHOTO) Industrial and Unbrako Products Division/Cleveland, OH
(PHOTO) Aerospace Products Division/Salt Lake City, UT
(PHOTO) Aerospace Products Division/Jenkintown, PA
(PHOTO) Cannon-Muskegon Corporation/Muskegon, MI
(PHOTO) Arnold Engineering Co./Ogallala, NE
(PHOTO) Arnold Engineering Co./Norfolk, NE
(PHOTO) Arnold Engineering Co./Marengo, IL
(PHOTO) Arnold Engineering Co./Sevierville, TN
32
<PAGE>
WORLDWIDE
(PHOTO) Hi-Life Tools/Shannon, Ireland
(PHOTO) Unbrako Products Division/Shannon, Ireland
(PHOTO) Aerospace Products Division/Leicester, England
(PHOTO) Industrial Products Division/Coventry, England
(PHOTO) Precision Fasteners Limited/Bombay, India
(PHOTO) Industrial Products Division/Birmingham, England
(PHOTO) Metalac S.A. Industria e Comercio/Sao Paulo, Brazil
(PHOTO) Industrial and Unbrako Products Division/Melbourne, Australia
33
<PAGE>
SPS
TECHNOLOGIES
CORPORATE OFFICES
101 Greenwood Avenue, Suite 470
Jenkintown, Pennsylvania 19046
(215) 517-2000
------------------------------------------------------------------
------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
MANUFACTURING
PLANTS
<S> <C> <C>
Santa Ana, California Norfolk, Nebraska Jenkintown, Pennsylvania
Marengo, Illinois Ogallala, Nebraska Sevierville, Tennessee
Muskegon, Michigan Cleveland, Ohio Salt Lake City, Utah
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
SUBSIDIARIES AND
*AFFILIATES
The Arnold *Pacific Products Standco Canada, Ltd.
Engineering Co. Limited Toronto, Canada
Marengo, Illinois Singapore
Norfolk, Nebraska Tokyo, Japan Unbrako Mexicana, S.A.
Ogallala, Nebraska de C.V.
Sevierville, Tennessee *Precision Fasteners Mexico City, Mexico
Limited
Cannon-Muskegon Bombay, India Unbrako Pty. Limited
Corporation Melbourne, Australia
Muskegon, Michigan S.P.S. International
Limited Unbrako Schrauben
*Metalac S.A. Industria Shannon, Ireland GmbH
e Comercio Koblenz, Germany
Sao Paulo, Brazil SPS Technologies
Limited
*National-Arnold Birmingham, England
Magnetics Company Coventry, England
Adelanto, California Leicester, England
-----------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
SPS
TECHNOLOGIES
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOARD OF DIRECTORS
<S> <C> <C>
Charles W. Grigg Paul F. Miller, Jr. Raymond P. Sharpe
Chairman and Chief Former Senior Partner Executive Vice President
Executive Officer Miller, Anderson & Cookson America, Inc.,
SPS Technologies, Inc. Sherrerd, an investment a manufacturer of
management firm industrial materials
Howard T. Hallowell III
Former Economist Eric M. Ruttenberg Harry J. Wilkinson
Eastman Kodak Company Managing Partner President and Chief
Tinicum Investors, L.P., Operating Officer
John Francis Lubin an investment SPS Technologies, Inc.
Professor Emeritus of management company
Management
The Wharton School
University of Pennsylvania
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
OFFICERS
Charles W. Grigg John P. McGrath Harry W. Antes
Chairman and Chief Vice President Vice President
Executive Officer Corporate Services Research and Development
Harry J. Wilkinson Aaron Nerenberg John M. Morrash
President and Chief Vice President Treasurer and
Operating Officer Corporate Counsel Assistant Secretary
and Secretary
William M. Shockley
Controller
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
AUDITORS TRANSFER AGENT
REGISTRAR
Coopers & Lybrand L.L.P. DIVIDEND
2400 Eleven Penn Center DISBURSING AGENT
Philadelphia, Pennsylvania
19103 Mellon Bank, N.A. Shareholders with inquiries
c/o Mellon Securities about their share ownership
NEW YORK STOCK Transfer Services should contact Mellon Bank at
EXCHANGE TICKER 85 Challenger Road (412) 236-8000
SYMBOL: ST Overpeck Centre
Ridgefield Park,
New Jersey 07660
</TABLE>
-----------------------------------------------------------------------
The Annual Meeting of shareholders will be held on Tuesday, May 2, 1995
at 10 a.m. at 17 Mellon Bank Center, Forum Room (8th floor), 1735
Market Street, Philadelphia, Pennsylvania.
<PAGE>
EXHIBIT 21
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
At December 31, 1994, the Company or one of its wholly-owned subsidiaries
had, among others, the following subsidiaries:
The Arnold Engineering Co.
(an Illinois corporation)...................100% stock interest
Cannon-Muskegon Corporation
(a Michigan corporation)....................100% stock interest
Metalac S.A. Industria e Comercio
(a Brazilian corporation).................46.49% stock interest
(43% voting, 49.96% non-voting)
National-Arnold Magnetics Company
(a California partnership).............50% partnership interest
Pacific Products Limited
(a United Kingdom corporation)...............50% stock interest
Precision Fasteners Limited
(an Indian corporation)...................22.05% stock interest
SPS International Investment Company
(a Delaware corporation)....................100% stock interest
S.P.S. International Limited
(an Irish corporation)......................100% stock interest
SPS Technologies Limited
(a United Kingdom corporation)..............100% stock interest
Standco Canada, Ltd.
(a Canadian corporation)....................100% stock interest
Unbrako Mexicana, S.A. de C.V.
(a Mexican corporation).....................100% stock interest
Unbrako Pty. Limited
(an Australian corporation).................100% stock interest
Unbrako Schrauben, GmbH
(a German corporation)......................100% stock interest
The Company files consolidated financial statements which include the above
subsidiaries, except for Pacific Products Limited, Precision Fasteners
Limited, Metalac S.A. Industria e Comercio, and National-Arnold Magnetics
Company, as well as subsidiaries which have been omitted from the above list;
all such omitted subsidiaries considered in the aggregate as a single
subsidiary do not constitute a "significant subsidiary" as defined in Rule
1-02(v) of Regulation S-X under the Securities Exchange Act, as amended.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
SPS Technologies, Inc. and Subsidiaries on Form S-8 (Registration No. 33-
23778) and Post Effective Amendments to the Registration on Form S-8
(Registration Nos. 2-64082, 2-90908) of our report dated February 10, 1995,
on our audits of the consolidated financial statements and financial
statement schedule of SPS Technologies, Inc. and Subsidiaries as of December
31, 1994 and 1993, and for the years ended December 31, 1994, 1993 and 1992,
which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
March 31, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 9,472
<SECURITIES> 0
<RECEIVABLES> 55,733
<ALLOWANCES> 1,299
<INVENTORY> 77,299
<CURRENT-ASSETS> 160,351
<PP&E> 187,500
<DEPRECIATION> 99,736
<TOTAL-ASSETS> 289,246
<CURRENT-LIABILITIES> 71,860
<BONDS> 56,426
<COMMON> 6,378
0
0
<OTHER-SE> 117,726
<TOTAL-LIABILITY-AND-EQUITY> 289,246
<SALES> 348,905
<TOTAL-REVENUES> 348,905
<CGS> 292,580
<TOTAL-COSTS> 292,580
<OTHER-EXPENSES> 3,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,924
<INCOME-PRETAX> 6,120
<INCOME-TAX> 2,920
<INCOME-CONTINUING> 3,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,200
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
